Full text of Press Releases of the United States Department of the Treasury : Volume 198

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T

/U4*3

LIBRARY
ROOM 5030
.JUL 9. it 1976
TREASURY DEPARTMENT

I

7-13-07 5
TVe/\sfy

FOR IMMEDIATE RELEASE
FRIDAY, AUGUST 1, 1975
CONTACT: PRISCILLA R. CRANE (202) 634-5248
A new reference book issued today by the Office of Revenue
Sharing lists each state and local government's share of the
over $20 billion the office has distributed since 1972. Fiscal
year 1976 estimated allocations to more than 38,000 recipient
governments are shown as well.
The figures are presented in such a way as to enable the
reader to compare amounts by jurisdiction from one payment
period to another.
The document is entitled Payment Summary: Entitlement Periods
1 through 5 with Period 6 Estimate. "Its publication is part
of an ongoing effort to keep the public fully informed about all
aspects of the program," said Graham W. Watt, Director of the
Office of Revenue Sharing.
"From the beginning of the General Revenue Sharing program,
it has been our practice to publish all data, payment amounts,
and descriptions of procedures for public use and review," Watt
stated.

/

-2

Copies of the publication may be obtained from the C.overnment
Printing Office. Reference copies are available in the Treasury
Department's Library at 15th and Pennsylvania Avenue, and at
the Office of Revenue Sharing, 2401 E. Street, N.W., Washington,
D. C.
The figures published include any adjustments to initial
allocations that were made at the end of each of the first five
entitlement periods as a result of improvements to the data used
to calculate individual governments' amounts. Each year, the
Office of Revenue Sharing invites each recipient government to
review and propose improvements to its own data on population,
per capita income and tax effort. These numbers are used to
allocate shared revenues for all governments.
The State and Local Fiscal Assistance Act of 1972 (P.L. 92-512)
authorizes the distribution of $30.2 billion over five years ending
in December 1976. President Ford has proposed to Congress that
the program be renewed through September, 1982.

-30-

REMARKS BY THE HONORABLE WILLIAM E. SIMON
SECRETARY OF THE TREASURY
AT THE BICENTENNIAL DEDICATION
OF THE CUSTOMHOUSE IN NEW YORK
NEW YORK CITY, AUGUST 1, 1975
MAYOR BEAME, DISTINGUISHED GUESTS, MEMBERS OF THE TREASURY
DEPARTMENT, AND FELLOW CITIZENS:

IT IS WITH A DEEP SENSE OF AWE THAT I SPEW TO YOU FROM
THESE STEPS TODAY.

IF YOU WILL PAUSE FOR A MOMENT TO REFLECT UPON OUR
HISTORY AS A NATION, YOU WILL SOON REALIZE THAT THERE ARE
PERHAPS A HALF-DOZEN SITES ALONG THE EASTERN SEABOARD WHERE
ONE CAN BREATHE DEEPLY OF OUR EARLY EXPERIENCES AS AMERICANS —
HISTORIC SITES THAT STIR THE HEART AND RECALL THE SPIRIT OF
YESTERYEAR.

THINK, FOR INSTANCE, OF HOW.MUCH OF THE AMERICAN STORY
CAN BE TRACED BACK TO PLYMOUTH ROCK AND TO WILLIAMSBURG; HOW
MUCH OF IT WAS WRITTEN IN BLOOD AT BUNKER HLLL AND IN THE SNOW AT
VALLEY FORGE; AND HOW FREEDOM TOOK ROOT AND FLOURISHED

- 2AT INDEPENDENCE HALL AND IN THE NEW CAPITAL ALONG THE POTOMAC
EACH OF THOSE SITES IS HISTORIC, AND YET NONE OF THEM HAS
PLAYED A MORE VITAL AND CONTINUING ROLE IN AMERICA'S GROWTH
THAN THE GROUNDS WHERE WE GATHER TODAY AND THIS CUSTOMHOUSE
THAT WE FORMALLY DEDICATE,

IT WAS HERE ON THIS SITE OVER 200 YEARS AGO, IN THE
CITY HALL THAT ORIGINALLY OCCUPIED THESE GROUNDS, THAT JOHN
PETER ZENGER WAS ACQUITTED FOR LIBEL, STRIKING THE FIRST
BLOW FOR FREEDOM OF THE PRESS IN THE NEW WORLD.

IT WAS HERE THAT THE CONTINENTAL CONGRESS MET AND
ISSUED ITS FAMOUS CHALLENGE TO THE ENGLISH PARLIAMENT,
INSISTING THAT THE COLONIES WOULD NOT TOLERATE TAXATION
WITHOUT REPRESENTATION.

IT WAS HERE, AFTER THE CITY HALL WAS RENOVATED AND
RENAMED FEDERAL HALL, THAT THE FIRST CONGRESS OF THE UNITED
STATES GATHERED IN 1789.

- 3HERE GEORGE WASHINGTON WAS INAUGURATED AS OUR FIRST
PRESIDENT.

HERE THE FIRST THREE EXECUTIVE DEPARTMENTS WERE
ESTABLISHED -- STATE, WAR AND TREASURY — AND THOMAS JEFFERSON,
HENRY KNOX, AND ALEXANDER HAMILTON ENTERED THE FIRST CABINET.

HERE THE BILL OF RIGHTS WAS SENT BY THE CONGRESS TO THE
STATES FOR RATIFICATION.

AND HERE, IN 1842, THE PRESENT BUILDING WAS COMPLETED
AND BECAME ONE OF THE MOST FAMOUS CUSTOMHOUSES IN THE NATION.
WITH AMERICAN TRADE RAPIDLY EXPANDING, THE CUSTOMS DEPARTMENT
SOON OUTGREW THESE ACCOMMODATIONS AND MOVED A SHORT DISTANCE
AWAY, SO THAT THIS BUILDING SERVED FOR MANY YEARS AS SUB~
TREASURY OFFICE BEFORE IT WAS DESIGNATED AS A NATIONAL
MONUMENT.

1*0

- 4As PART OF OUR BICENTENNIAL CELEBRATION, IT IS CERTAINLY
FITTING THAT THE CUSTOMHOUSE AND THE U.S. CUSTOMS SERVICE
ITSELF BE RECOGNIZED AS AN IMPORTANT PART OF OUR NATIONAL
HERITAGE.

THE CUSTOMS SERVICE WAS CREATED EVEN BEFORE THE

TREASURY DEPARTMENT BECAUSE OF THE NEW GOVERNMENT'S DESPERATE
NEED FOR FUNDS.

AND FOR A CENTURY AND A HALF, IT PROVIDED

THE FEDERAL GOVERNMENT WITH ITS PRINCIPAL SOURCE OF REVENUE

—

UNTIL, OF COURSE, SOMEONE DECIDED THAT THE GOVERNMENT COULD
SPEND EVEN MORE MONEY IF IT ALSO TAXED YOUR INCOME.

TODAY

THE CUSTOMS SERVICE PROVIDES ONLY A SMALL PORTION OF GOVERNMENT
REVENUES, BUT IT REMAINS'AN ESSENTIAL ARM OF THE FEDERAL
ESTABLISHMENT, AND WE ARE PROUD OF ITS COMMISSIONER, VERNON
ACREE, AS WELL AS THE THOUSANDS OF DEDICATED CIVIL SERVANTS
WHO FILL ITS RANKS.

IT IS ALSO FITTING, I WOULD SUGGEST, THAT THE BUILDING
WE DEDICATE TODAY -- THIS SYMBOL OF OUR FREEDOM AND

- 5INDEPENDENCE -- IS NESTLED HERE AMONG THE LOFTY SPIRES OF
COMMERCE AND FINANCE.

THROUGHOUT OUR HISTORY, FREEDOM AND COMMERCE HAVE BEEN
CLOSELY INTERTWINED. EACH HAS GIVEN STRENGTH AND NOURISHED
THE OTHER; NEITHER COULD HAVE SURVIVED WITHOUT-THE SUPPORT
OF THE OTHER.

• INDEED, THE FREEDOM TO SEEK ONE'S FORTUNE WITHOUT FEAR
OR FAVOR, THE FREEDOM TO BUY AND SELL IN OPEN MARKETS, THE
FREEDOM TO BUILD A BETTER MOUSETRAP ~ THESE ARE THE
FOUNDATIONS OF OUR ECONOMIC SYSTEM.

AND IT IS THAT FREE ENTERPRISE SYSTEM, WE SHOULD REMEMBER,
»

THAT HAS PROVIDED THIS NATION WITH THE GREATEST PROSPERITY
AND THE HIGHEST STANDARD OF LIVING ANYWHERE IN THE WORLD.

AS WE SEEK AN UPWARD PATH OUT OF ECONOMIC RECESSION AND
AS WE TRY TO CONQUER THE THREAT OF INFLATION, THERE WILL BE

- 6CONTINUING TEMPTATIONS TO, REPLACE OUR FREE ENTERPRISE SYSTEM
WITH THE FORCES OF GOVERNMENTAL CONTROL. WE HAVE ALREADY
DRIFTED FAR -- MUCH TOO FAR, IN MY OPINION ~ TOWARD A
CENTRALIZED ECONOMY IN THE UNITED STATES. WHEN THE STORY OF
THIS ERA IS WRITTEN, IT WILL REVEAL, I BELIEVE, THAT MANY
OF OUR CURRENT ECONOMIC TROUBLES CAN BE TRACED BACK TO THE
RAPID GROWTH OF GOVERNMENTAL SPENDING AND REGULATION. OUR
MOST CRITICAL ECONOMIC CHALLENGE OVER THE NEXT DECADE IS TO
CORRECT THE BALANCE BETWEEN PRIVATE AND PUBLIC POWER AND
TO RESTORE THE VIGOR OF OUR ECONOMIC SYSTEM.

DELVING BACK INTO HISTORY, ONE IS REMINDED TIME AND AGAIN
OF HOW UNIQUE OUR EXPERIENCE IS AMONG THE FAMILY OF-NATIONS
AND HOW MUCH HUMAN HOPE IS INVESTED IN OUR EXPERIMENT AS A
DEMOCRACY.

As GEORGE WASHINGTON TOLD HIS FELLOW COUNTRYMEN IN
THAT FIRST INAUGURAL ADDRESS DELIVERED HERE IN 1789:

- 7"THE PRESERVATION OF THE SACRED FIRE OF LIBERTY, AND THE
DESTINY OF THE REPUBLICAN MODEL OF GOVERNMENT, ARE JUSTLY
CONSIDERED AS DEEPLY, PERHAPS AS FINALLY STAKED, ON THE
EXPERIMENT ENTRUSTED TO THE HANDS OF THE AMERICAN PEOPLE."

LADIES AND GENTLEMEN, LIKE MANY OF YOU, I HAVE LABORED
LONG HOURS IN THE VINEYARDS ON WALL STREET AND KNOW FULL
WELL THE ENORMOUS TALENTS AND ENERGY THAT ARE CENTERED HERE.
AS WE CELEBRATE THIS BICENTENNIAL, I WOULD MAKE A SPECIAL
APPEAL THAT ALL OF US RENEW OUR COMMITMENT TO BUILDING AN
AMERICA WHERE FREEDOM AND PROSPERITY MAY ONCE AGAIN FLOURISH
TOGETHER. LET THIS FAMOUS OLD SITE HERE IN THE HEART OF OUR
FINANCIAL COMMUNITY SERVE AS A REMINDER OF WHAT GR.EAT GOOD
»

CAN BE ACCOMPLISHED WHEN THESE FORCES ARE UNITED -AND AS A
VISIBLE SYMBOL OF OUR CONTINUING COMMITMENT TO THEM IN THE
FUTURE.

THANK YOU.

# » #

Department of theJREASURY
\SHINGTON, D.C. 20220

TELEPHONE W04-2041

)0
FOR IMMEDIATE RELEASE

August 4, 1975

RESULTS OF TREASURY'S WEEKLY BILL AUCTIONS
Tenders for $3.0 billion of 13-week Treasury bills and for $3.0 billion
of 26-week Treasury bills, both series to be issued on August 7, 1975,
were opened at the Federal Reserve Banks today. The details are as follows:
RANGE OF ACCEPTED
13-week bills
COMPETITIVE BIDS: maturing November 6, 1975

High
Low
Average

Price

Discount
Rate

Investment
Rate 1/

98.384
98.365
98.368

6.393%
6.468%
6.456%

6.61%
6.69%
6.67%

26-week bills
maturing February 5, 1976
Price

Discount
Rate

96.564 a/6.796%
96.524
6.876%
96.530
6.864%

Investment
Rate 1/
7.16%
7.24%
7.23%

a/ Excepting 1 tender of $10,000
Tenders at the low price for the 13-week bills were allotted 40%.
, Tenders at the low price for the 26-week bills were allotted 59%.
TOTAL TENDERS RECEIVED AND ACCEPTED BY FEDERAL RESERVE DISTRICTS:
District

Received

59,580,000
$
Boston
,446,565,000
New York
93,625,000
Philadelphia
86,345,000
Cleveland
40,175,000
Richmond
46,690,000
Atlanta
338,775,000
Chicago
50,630,000
St. Louis
16,740,000
Minneapolis
54,305,000
Kansas City
45,095,000
Dallas
San Francisco 314,225,000
TOTALS$5,592,750,000

Received

Accepted

$
34,100,000
2,443,365,000
48,755,000
47,070,000
30,125,000
39,845,000
165,745,000
31,380,000
12,740,000
41,105,000
27,095,000
79,025,000

$
61,035,000
4,534,755,000
35,695,000
168,550,000
73,915,000
41,780,000
275,745,000
33,425,000
12,130,000
40,535,000
43,830,000
183,505,000

$
24,985,000
2,681,805,000
10,590,000
65,915,000
50,955,000
17,270,000
43,535,000
17,015,000
7,310,000
28,640,000
15,830,000
36,255,000

$3,000,350,000 b/

$5,504,900,000

$3,000,105,000 c/

Accepted

h/ Includes $ 524,690,000 noncompetitive tenders from the public.
~/ Includes $ 251,465,000 noncompetitive tenders from the public.
T/ Equivalent coupon-issue yield.

OH

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aeraiWASHINGTON,
nnancmg
DanK
D.C. 20220

«/> CsJ

a> o

//

FOR IMMEDIATE RELEASE

August 4, 1975

SUMMARY OF LENDING ACTIVITY
July 14 - July 31, 1975
Federal Financing Bank lending activity for the period
July 14 through July 31, 1975, was announced as follows by
Roland H. Cook, Secretary:
The FFB made the following loans to telephone and electric
utility companies guaranteed by the Rural Electrification
Administration:
Date
July 15
July 15
July 16
July 21
July 23
July 23
.July 31

Interest
Borrower
Amount
Rate
Maturity
Colorado-Ute Electric
$2.3 million
7.491
7/15/77
Association
Tri-State Generation
§ Transmission Assoc. $3.9 million 8. 28% 12/31/09
(Kansas City, Mo.)
Cooperative Power
$1.3 million 8.281 12/31/09
Association
(Minneapolis, Minn.)
South Mississippi Electric7.65% 7/25/77
Power Assoc.
$3.8 million
Leesport
Telephone Co.
8.36% 12/31/09
$3.2 million
Dallas, Pa.
United Power Assoc.
Elk River, Minn.

$1.2 million

8.36% 12/31/09

Oglethorpe Elec.
Membership Corp.
(Georgia)

$1.7 million

7.89

8/10/77

The above interest rates on the REA loans are quarterly
rates.

(Overl

2
The Bank made the following advances to borrowers guaranteed
by the Department of Defense under the Foreign Military Sales Act
Date
July 16
July 16

Amount
$2.3 million
$15.0 million

Borrower
Government of Greece
Government of Greece

Interest
Rate
Maturity
8.125%
3/1/85
6/30/85
8.125

The United States Railway Association made two drawings
against its line of credit with the Bank:
Interest
Maturity
Rate
8/25/75
6 4961
8/25/75
6 675%
On July 18, the Department of Health, Education and Welfare
borrowed $4 million from the Bank under the Medical Facilities
Loan Program. The interest rate is 8.31
and the maturity is
July 1, 1999.
•u
u
AMTRAK, the National Railroad Passenger Corporation,made
three drawings against its line of credit with the Bank:
Interest
Date
Amount
Maturity
Rate
July 21
$4.0 million
9/30/75
6.471%
July 28
$13.5 million
9/30/75
6.596%
July 29
$12.5 million
9/30/75
6.602%
On July 23, the Bank purchased $3,760,000 of debentures
from the following Small Business Investment Companies:

Date
July 17
July 31

Amount
$2.2 million
$23.0 million

Company
Midland Capital Corp.
New York, New York
Enterprise Capital Corp.
Houston, Texas
Alliance Business Investment
Co., Tulsa, Oklahoma
Enterprise Capital Corp.
Houston, Texas
Alliance Business Investment
Co., Tulsa, Oklahoma
Atlas Capital Corp.,
Boston, Massachusetts

Amount
$

Interest
Rate
Maturity

500,000

7.98%

7/1/78

200,000

8.16%

7/1/80

400,000

8.23%

7/1/82

200,000

8.23%

7/1/82

710,000

8.29%

7/1/85

150,000

8.29%

7

/l/85

3
Interest
Rate

Company
Amount
Maturity
Cascade Capital Corp.,
Portland, Oregon
$1,000,000
8.29%
7/1/85
Enterprise Capital Corp.,
Houston, Texas
200,000
8.29%
7/1/85
Northwest Small Business
Investment Corp.,
Boston, Massachusetts
400,000
8.29%
7/1/85
The SBIC debentures are guaranteed by the Small Business
Administration.
On July 31, the Student Loan Marketing Association (Sallie
Mae) rolled over a $25 million loan maturing with the Bank.
The interest rate is 6.55%. The loan matures on October 30, 19
On July 31, the FFB purchased a $200 million power bond
from the Tennessee Valley Authority at 8.47% interest. The
maturity is July 31, 2000. On the same day, TVA borrowed
$120 million 92-day funds at 6.634% interest. Proceeds of
the TVA loans were used to pay off $310 million maturing with
the Bank.
Federal Financing Bank loans outstanding on July 31, 1975
total $13.9 billion.

o 0 o

/</

FOR RELEASE AT 4:00 P.M.

August 5, 1975

TREASURY'S WEEKLY BILL OFFERING
The Department of the Treasury, by this public notice, invites tenders for
two series of Treasury bills to the aggregate amount of $6,100,000,000 , or
thereabouts, to be issued August 14, 1975,

as follows:

9tday bills (to maturity date) in the amount of $3,000,000,000* or
thereabouts, representing an additional amount of bills dated May 15, 1975,
and to mature November 13, 1975

(CUSIP No. 912793 XX9 ) , originally issued in

the amount of $2,800,775,000, the additional and original bills to be freely
interchangeable.
183-day bills, for $3,100,000,000, or thereabouts, to be dated August 14, 1975,
and to mature February 13, 1976 (CUSIP No. 912793 YT7 ). '
The bills will be issued for cash and in exchange for Treasury bills maturing
August 14, 1975,

outstanding in the amount of $5,304,165,000, of which

Government accounts and Federal Reserve Banks, for themselves and as agents of
foreign and international monetary authorities, presently hold $3,157,485,000 .
These accounts may exchange bills they hold for the bills now being offered at
the average prices of accepted tenders.
The bills will be issued on a discount basis under competitive and noncompetitive bidding, and at maturity their face amount will be payable without
interest.

They will be issued in bearer form in denominations of $10,000,

$15,000, $50,000, $100,000, $500,000 and $1,000,000 (maturity value), and in
book-entry form to designated bidders.
Tenders will be received at Federal Reserve Banks and Branches up to
one-thirty p.m., Eastern Daylight Saving time, Monday, August 11, 1975.
Tenders will not be received at the Department of the Treasury, Washington.
Each tender must be for a minimum of $10,000. Tenders over $10,000 must be in
multiples of $5,000.

In the case of competitive tenders the price offered must

be expressed on the basis of 100, with not more than three decimals, e.g., 99.925.
Fractions may not be used.
Banking institutions and dealers who make primary markets in Government

(OVER)

-2securities and report daily to the Federal Reserve Bank of New York their position!
with respect to Government securities and borrowings thereon may submit tenders
for account of customers provided the names of the customers are set forth in
such tenders.

Others will not be permitted to submit tenders except for their

own account.

Tenders will be received without deposit from incorporated banks

and trust companies and from responsible and recognized dealers in investment
securities.

Tenders from others must be accompanied by payment of 2 percent of

the face amount of bills applied for, unless the tenders are accompanied by an
express guaranty of payment by an incorporated bank or trust company.
Public announcement will be made by the Department of the Treasury of the
amount and price range of accepted bids.

Those submitting competitive tenders

will be advised of the acceptance or rejection thereof.

The Secretary of the

Treasury expressly reserves the right to accept or reject any or all tenders,
in whole or in part, and his action in any such respect shall be final. Subject
to these reservations, noncompetitive tenders for each issue for $500,000 or less
without stated price from any one bidder will be accepted in full at the average
price (in three decimals) of accepted competitive bids for the respective issues.
Settlement for accepted tenders in accordance with the bids must be made or
completed at the Federal Reserve Bank or Branch on August 14, 1975,

in cash or

other immediately available funds or in a like face amount of Treasury bills
maturing August 14, 1975.
ment.

Cash and exchange tenders will receive equal treat-

Cash adjustments will be made for differences between the par value of

maturing bills accepted in exchange and the issue price of the new bills.
Under Sections 454(b) and 1221(5) of the Internal Revenue Code of 1954 the
amount of discount at which bills issued hereunder are sold is considered to
accrue when the bills are sold, redeemed or otherwise disposed of, and the bills
are excluded from consideration as capital assets.

Accordingly, the owner of

bills (other than life insurance companies) issued hereunder must include in his
Federal income tax

return, as ordinary gain or loss, the difference between

the price paid for the bills, whether on original issue or on subsequent purchase,
and the amount actually received either upon sale or redemption at maturity
during the taxable year for which the return is made.
Department of the Treasury Circular No. 418 (current revision) and this noticf
prescribe the terms of the Treasury bills and govern the conditions of their
issue.
Branch.

Copies of the circular may be obtained from any Federal Reserve Bank or

FOR RELEASE AT 3:30 P.M.

August 6, 1975

TREASURY OFFERS $1.0 BILLION OF TREASURY BILLS
The Department of the Treasury, by this public notice, invites tenders for
$1.0 billion of 18-day Treasury bills to be issued August 8, 1975, to mature
[ August 26, 1975. The bills will be an additional issue of Treasury bills now
outstanding dated August 27, 1974, due August 26, 1975 (CUSIP No. 912793 WS1).
The bills will be issued on a discount basis under competitive bidding, and
at maturity their face amount will be payable without interest. They will be
, issued in bearer form in denominations of $10,000, $15,000, $50,000, $100,000,
$500,000 and $1,000,000 (maturity value), and in book-entry form to designated bidders.
i

Tenders will be received only at the Federal Reserve Bank of New York up to
noon, Eastern Daylight Saving time, Thursday, August 7, 1975. Wire and telephone
tenders may be received at the discretion of the Federal Reserve Bank of New York.
Each tender must be for a minimum of $10,000,000. Tenders over $10,000,000 must be
Klin multiples of $1,000,000. The price on tenders offered must be expressed on the
.basis of 100, with not more than three decimals, e.g., 99.925. Fractions may not
be used.
Banking institutions and dealers who make primary markets in Government securities
land report daily to the Federal Reserve Bank of New York their positions with respect
to Government securities and borrowings thereon may submit tenders for account of
customers provided the names of the customers are set forth in such tenders. Others
ski will not be permitted to submit tenders except for their own account. Tenders will
be received without deposit from incorporated banks and trust companies and from
responsible and recognized dealers in investment securities. Tenders from others
iemust be accompanied by payment of 2 percent of the face amount of bills applied for,
unless the tenders are accompanied by an express guaranty of payment by an incorporated
bank or trust company.
Public announcement will be made by the Department of the Treasury of the
tl(amount and price range of accepted bids. Those submitting tenders will be advised
of the acceptance or rejection thereof. The Secretary of the Treasury expressly
reserves the right to accept or reject any or all tenders, in whole or in part, and
ill his action in any such respect shall be final. Settlement for accepted tenders in
accordance with the bids must be made at the Federal Reserve Bank of New York on
^August 8, 1975, in immediately available funds.
^
Under Sections 454(b) and 1221(5) of the Internal Revenue Code of 1954 the
amount of discount at which bills issued hereunder are sold is considered to accrue
when the bills are sold, redeemed or otherwise disposed of, and the bills are
^excluded from consideration as capital assets. Accordingly, the owner of bills
(other than life insurance companies) issued hereunder must include in his Federal
income tax return, as ordinary gain or loss, the difference between the price paid
for the bills, whether on original issue or on subsequent purchase, and the amount
.actually received either upon sale or redemption at maturity during the taxable
year for which the return is made.
Department of the Treasury Circular No. 418 (current revision) and this notice,
^prescribe the terms of the Treasury bills and govern the conditions of their issue.
Copies of the circular may be obtained from any Federal Reserve Bank or Branch.
oOo

For information on submitting tenders:

TELEPHONE

W04-2604

FOR RELEASE AT 3:30P.M.

August 6, 1975

DETAILS OF TREASURY'S NOTE AUCTIONS
The notes to be auctioned to the public will be:
$2.0 billion of Treasury Notes of Series L-1977 dated August 29,
1975, due August 31, 1977 (CUSIP No. 912827 EV 0) with interest
payable on February 29, 1976, August 31, 1976, February 28, 1977,
and August 31, 1977, and
$2.0 billion of Treasury Notes of Series F-1979 dated September 4,
1975, due September 30, 1979 (CUSIP No. 912827 EW 8) with interest
payable on March 31 and September 30.
Ihe coupon rates will be determined after tenders are allotted.
Additional amounts of the notes may be issued at the average price of accepted
tenders to Government accounts and to Federal Reserve Banks for themselves and as
agents of foreign and international monetary authorities.
The 2-year notes will be issued in registered and bearer form in denominations
of $5,000, $10,000, $100,000 and $1,000,000. The 4-year 1-month notes will be issued
in registered and bearer form in denominations of $1,000, $5,000, $10,000, $100,000,
and $1,000,000. Both notes will be issued in book-entry form to designated bidders.
Delivery of 2-year bearer notes will be made on August 29, 1975, and delivery of
4-year 1-month bearer notes will be made on September 4, 1975. Payment for the
notes may not be made through tax and loan accounts.
Tenders for the 2-year notes will be received up to 1:30 p.m., Eastern Daylight
Saving time, Thursday, August 14, and tenders for the 4-year 1-month notes will be
received up to 1:30 p.m., Eastern Daylight Saving time, Thursday, August 21 at any
Federal Reserve Bank or Branch and at the Bureau of the Public Debt, Washington, D. C.
20226; provided, however, that noncompetitive tenders will be considered timely
received if they are mailed to any such agency under a postmark no later than
August 13 for the 2-year notes and August 20 for the 4-year 1-month notes. Each
tender for the 2-year notes must be in the amount of $5,000 or a multiple thereof.
2ach tender for the 4-year 1-month notes must be in the amount of $1,000 or a
multiple thereof. Each tender must state the yield desired, if a competitive tender,
5r the term "noncompetitive", if a noncompetitive tender.
Competitive tenders must be expressed in terms of annual yield in two decimal
)laces, e.g., 7.11, and not in terms of a price. Tenders at the lowest yields, and
loncompetitive tenders, will be accepted to the extent required to attain the amounts
)ffered. After a determination is made as to which tenders are accepted, a coupon
rield will be determined for each issue to the nearest 1/8 of 1 percent necessary
:o make the average accepted prices 100.000or less. Those will be the rates of
nterest that will be paid on all of the securities of each issue. Based on such

-2interest rates, the price on each competitive tender allotted will be determined
and each successful competitive bidder will pay the price corresponding to the
yield he bid. Price calculations will be carried to three decimal places on the
basis of price per hundred, e.g., 99.923, and the determinations of the Secretary
of the Treasury shall be final. Tenders at a yield that will produce a price less
than 99.501 for the 2-year notes and 99.001 for the 4-year 1-month notes will not
be accepted. Noncompetitive bidders will be required to pay the average price
of accepted competitive tenders; the price will be lOO.OQOor less.
Fractions may not be used in tenders. The notation "TENDER FOR TREASURY NOTES
(Series L^1977 or Series F-1979)" should be printed at the bottom of envelopes in
which tenders are submitted.
The Secretary of the Treasury expressly reserves the right to accept or reject
any or all tenders,.in whole or in part, and his action in any such respect shall
be final. Subject to these reservations noncompetitive tenders for $500,000 or less
for each issue of notes will be accepted in full at the average price of accepted
competitive tenders.
Commercial banks, which for this purpose are defined as banks accepting demand
deposits, and dealers who make primary markets in Government securities and report
daily to the Federal Reserve Bank of New York their positions with respect to Government securities and borrowings thereon, may submit tenders for the account of
customers, provided the names of the customers are set forth in such tenders. Others
will not be permitted to submit tenders except for their own account.
Tenders will be received without deposit from commercial and other banks for their
own account, Federally-insured savings and loan associations, States, political subdivisions or instrumentalities thereof, public pension and retirement and other public
funds, international organizations in which the United States holds membership,
foreign central banks and foreign States, dealers who make primary markets in Government securities and report daily to the Federal Reserve Bank of New York their positions with respect to Government securities and borrowings thereon, Federal Reserve
Banks, and Government accounts. Tenders from others must be accompanied by payment of
5 percent of the face amount of notes applied for. However, bidders who submit checks
in payment on tenders submitted directly to a Federal Reserve Bank or the Treasury may
find it necessary to submit full payment for the notes with their tenders in order to
meet the time limits pertaining to checks as hereinafter set forth. Allotment
notices will not be sent to bidders who submit noncompetitive tenders.
Payment for accepted tenders for the 2-year notes must be completed on or
before Friday, August 29, 1975. Payment for accepted tenders for the 4-^year 1-month
notes must be completed on Thursday, September 4, 1975. Payment must be in cash,
in other funds immediately available to the Treasury by the payment date or by
check drawn to the order of the Federal Reserve Bank to which the tender is
submitted, or the United States Treasury if the tender is submitted to it, which
must be received at such Bank or at the Treasury no later than: (1) Tuesday,
August 26, 1975, for the 2-year notes and Friday, August 29, 1975, for the
4-year 1-month notes if the check is drawn on a bank in the Federal Reserve
District of the Bank to which the check is submitted, or the Fifth Federal
Reserve District in case of the Treasury, or (2) Friday, August 22, 1975, for
the 2-year notes and Wednesday, August 27, 1975, for the 4-year 1-month notes
if the check is cfrawn on a bank in another district. Checks received after the
dates set forth in the preceding sentence will not be accepted unless they are
payable at a Federal Reserve Bank. Where full payment is not completed on time,
the allotment will be canceled and the deposit with the tender up to 5 percent
of the amount of notes allotted will be subject to forfeiture to the United States.

August 6, 1975
RUSSELL L. MUNK NAMED
ASSISTANT GENERAL COUNSEL
Treasury Secretary William E. Simon announced today the
appointment-of Russell L. Munk as Assistant General Counsel.
He succeeds Michael Bradfield who left the Department to enter
private law practice.
Mr. Munk will provide legal advice to the Under Secretary
(Monetary Affairs), the Assistant Secretary (International
Affairs), the Assistant Secretary (Trade, Energy, and Financial
Resources Policy Coordination), the Assistant Secretary
(Economic Policy), and the Special Assistant to the Secretary
(National Security).
He was born July 10, 1939 in Montpelier, Idaho. Prior to
joining Treasury, he was Senior Counsel, Office of the General
Counsel in the Asian Development Bank.
Mr. Munk was graduated from Harvard College in 1957 with
an A.B. degree in government, cum laude. He attended the
University of Utah College of Law. He received a J.D. degree
from Harvard Law School in 1967.
Mr. Munk is married to the former Margaret Rampton of
Salt Lake City, Utah. They have a daughter, Laura and a son,
Daniel Ramon.

oOo

/?

FOR IMMEDIATE RELEASE

August 6, 1975

, TREASURY FINANCING ANNOUNCEMENT
In order to meet the major part of its new money
requirements through the first week of September, the
Treasury Department will sell the following securities
during the next two weeks to raise $6 billion in new cash:
(1) Up to $1.0 billion of an additional amount of
bills dated August 27, 1974 which mature August 26, 1975,
to be sold only through the Federal Reserve Bank of New

York in minimum tenders of $10 million, on August 7 for payment Augus
(2) Up to $2.0 billion of 2-year notes dated August 29, tiid
1975 and maturing August 31, 1977; ,^ ^
(3) Up to $2.0 billion of 4-year 1-month notes dated
September 4, 1975 and maturing September 30, 1979; and
(4) Up to $1.0 billion of 13- and 26-week bills in
the regular weekly bill auction of August 18, 1975 in
addition to the amount maturing on August 21.
The addition to the 52-week bills maturing on August 26,
will increase the amount outstanding from $1.8 billion to
$2.8 billion. It is anticipated that the whole $2.8 billion
will be rolled over at maturity.

- 2 The 2-year Treasury note, due August 31, 1977, to be sold
on August 14, will be an additional issue in the sequence of
2-year cycle notes.
The 4-year 1-month note, due September 30, 1979, will
be sold on August 21 and will be the second 4-year cycle
note to be issued by the Treasury.
$6.3 billion of 13- and 26-week bills will be auctioned
on August 18, for payment on August 21, to refund $5.3 billion
of maturing weekly bills and to raise $1.0 billion of new
money.
Details of the note offerings and the special offering
of additional bills maturing August 26 are contained in
separate announcements issued today.

Details of the regular

bill auction of August 18 will be announced in the usual
form next week.

Department of theTREASURY
\SHINGTON, D.C. 20220

TELEPHONE W04-2041

JJL>

August 7, 1975

FOR IMMEDIATE RELEASE

RESULTS OF AUCTION OF $1.0 BILLION
OF 18-DAY TREASURY BILLS
The Treasury has accepted $1.0 billion of the $6.7
billion of tenders received for the 18-day Treasury bills
to be issued August 8, 1975, and to mature August 26, 1975,
auctioned today. The range of accepted bids was as follows
Price
Discount Rate
Investment Rate
High
Low
Average

99.691
99.684
99.686

6.180%
6.320%
6.280%

Tenders at the low price were allotted 69%.

6.30%
6.45%
6.40%

X

UNITED STATES DEPARTMENT OF THE TREASURY

Room 4121 Treasury Building
15th & Pennsylvania Ave. N.W.
ihington, D.C.
FRIDAY, August 8, 1975
12s00 m.

PRESS BRIEFING

DAVID U. MACDOWALD
Assistant Secretary
EH?ORCE^l^-r OPERATIONS AND TARIFF TJ?FT,IRS
- on TREASURY INITIATION OF INVESTIGATION INTO
ALLEGED D'£J2$PIEG OF IMPORTED AUTOMOBILES

•oOo-

PARTICIPANTS:PETER SUCH-CAN,
Deputy Director for Tariff Affairs
LYNN BARDEN,
General Counsel's Office
and
MEMBERS OF THE PRESS

-0O0-

IKTRODUCriON BYs
CHARLES ARNOLD
Office of Public Affairs

~G0O

3
MR. ARNOLD: Ladies and gentlemen: We are ready
to start.
The deal is that at 12:16, the wires are free
to go'
SECRETARY MACDONALD: $ Thanks very much for
putting up with a slight delay in this press conference.
My name is David M&cdonald. 1 am Assistant
Secretary for Enforcement Operations and Tariff Affairs
of the Treasury Department.
On my right is Peter Suchman, Deputy for Tariff
Affairs.
On my left is Lynn Harden from our General
Counsel's Office*
The Treasury Department, yesterday, determined
to initiate a formal investigation into alleged dumping of
automobiles from eight Countries. The eight Countries are:
West Germanyj
United Kingdom?
France ?
Belgium;
Italy?
Sweden;
Japan and
Canada.
As you may know, th-^r-s are tio facets ec a

4
Dumping investigation. The Treasury Department determines whether
sales are being made at less-than-fair-value; and this determination must be made within six months or—in complicated cases-within nine months.
If a positive determination is made in that respect
by the Treasury Department, the case is referred to the
U. S. International Trade Coramission — formerly the Tariff
Commission — which then determines whether U.S. Industry
has been~or is likely to be—injured by reason of the sales
at less than fair value.
As a result of the enactment of the Trade Act of
1974, there is a new procedure which has been legislated,
whereby-»if the Treasury Department has "substantial doubt"
that the sales at less than fair value are a cause of the
injury—the Treasury Department can refer it, immediately, over
to the U.S. International Trade Commission for a preliminary
look-see to determine whether that doubt can be resolved.
In this particular case, we have substantial doubt
that tho alleged sales-at-less-than-fair-value are, indeed,
a cause of injury to the U.S., Industry, and we have that
uouot because automobile coxm-irr^ officials have stated that
9v-t drop in domestic saias that has occurred with respect
•?*o v.h'2 Domestic Industry has not be^n caused by imports.
We think- therefore, that the U.S. International
Trade Coraais.c?icn should take a preliminary look to determine

5

^

r

\

whether or not there is 'no likelihood"*^ "No reasonable
indication" —

I should say —

of injury.

If they find that there is no reasonable indication
of injury in thirty days, we will drop our Complaint.
In the meantime, however, we will proceed just as
though we had not even referred referred it over to the
United States International Trade Commission.
We transmitted a letter to the International Trade
Commission last night.

Va are not releasing that letter.

They may release it.
Incidentally, if they determine that they cannot
find that there is no reasonable indication of

no injury

then we proceed through our six or nine month period.
find sales-at-iess-than-fair-value,

If we then

we will send it over to the

International Trade Commission again —

this time, for a

full Injury Investigation which they have to complete within
another three months.
At the time we send it over to the International
Trade i minission or, possibly,

in one case before wo do so,

we begin withholding appraisement on all injuries.

That means

that we do not liquidate ths injury so that--if actual injury
ir= found-we can later go back and assess

dumping duties

against the imports.
If the Interrrr.tionsl Trade Ccmmis~'.Gi. -rnds
posit:.-.rely,

the result, is

that a

x-mioing Orasr is entered

and every injury, from the time of the withholding of
appraisement, is then re-assessed and dumping duties, if
any, are imposed on the import. The size of those
dumping duties is equal to the price discrimination found
between sales by the foreign manufacturer in its own
Countryr and the export sales to the United States.
As you can imagine, this is a complex factual
investigation that requires a number of adjustments to be
made to raw wholesale prices but, basically, the concept of
the Dumping Act is that price discrimination on an
international basis as well as on a domestic basis is an
unfair method of competition and should not be tolerated
except where no injury exists.
As a result, the theory of the Act is to compare
ths sales of cars—both domestically and for export-—on a
mill-net basis, back to the foreign factory.
Now, there are several things involved in this
initiation of i\n investigation that I want to get over very
clearly, if I may — several things that are not true.
No. 1: Thin procedure *— when a valid complaint
is filed — is mandatory. We must initiate the investigation.'
This is not a discretionary thing with the Secretary of the
Treasury or the Treasury Department/
No. 2: The procedure is fully consistent
with U.S. International obligations, ar.d with our own Anti-

1
Dumping law.
Finally, This procedure does not — repeat, not —
evidence*-on the part of the United States-an intent to adopt
a protectionist posture with respect to its foreign trading
partners.
Questions. Yes, sir:
MEMBER OF THE PRESS: Who made the complaint?
SECRETARY MACDONALD: There were two complaints filed.
One was made by Congressman John Dent of Pennsylvania, and
one was filed hy the United Auto Workers. The United Auto
Workers0 complaint was limited to three Countries: Italy,
Germany, and the U.K.
Yes, siri
MEMBER OF THE PRESS: As I recall it, Belgium
was not in the original complaint?
SECRETARY MACDONALD: It was in the original complaint
of Congressman Dent*
MEMBER OF THE PRESSs In that connection, Mr.
Macdonald, the Common Market reportedly has said that only
ccr.Tplaiits from the Industry are valid complaints.
What is the answer to that?
&ECPJ3TARY MACDONALDs The answer to that is a twofold err. In the first place, the International Antinrirpin:? Code provides that ^f;>rnallvf an investigation will
be C9h:.,rc need upon the tiling of a ccmplarnt T*?hich7 obviously,

3
indicates that it can b& filed without any complaint in a
particular case. So that that argument is not valid.
Moreover, our own law and regulations require
a fxlmg on behalf of an Industry.
We feel that that entitles anyone who purports to
be actingnon behalf'of an Industry to file a complaint and, in
fact, past complaints have tean filed-under the Dumping Laws—
not by the manufacturers, as such, but (1) by Congressmen —
(in the matter of)
namely^ pig iron from several Countries filed by Congressman
Dulski. several years ago;

and

(2) by a Union — namely;

potash from Canada; and fur felt hat bodies from Czechoslovakia.
MEMBER OF 1HL PRESS: Mr. Macdonald, some Washington
"Anti-Dumping" lawyers feel that Treasury's "case*is very
weak/because the Trade Act of '74 gives parties claiming
anti-damping the remedy of going against a decision of the
Treasury,, And then the Trade Act stipulates that only
manufacturers, wholesalers, or other firms, have that right
to go to Court and fight a Decision of the Treasury not to
initiate Anti-Dumping.
Now, they alto e&y — concluding from that —
that the Trade Act givo^ tr»rouoh tho Adjustment Provision—
the function of helping workers, Union3 — the L:-.tor side ~
through the Adjustment Provision of the Tradr Act; and the
Ox:\grc30 did, indeed, intend to give the manufacturer."3 -but oroly to manufacturers —• the rrrirdy of instigating

Dumping cases.
SECRETARY TiAtDONALD: I am aware of the argument
We don't believe that argument has merit. In order
for it to have merit you would have to argue the mutual
exclucivity, in the first place, of adjustment assistance
in Anti Dumping.
Moreover, you have to argue that the Congress in
1974, when it passed the Trrde Act of '74 intended to limit
what warj otherwise a broader capacity for complaint.
Having lived through a good part of the legislative
history of the enact.-jr.ont of the Trade Act of 1974, and
having read the rarerts on it, I find no such intention
evidenced.
MEMBER OF THE PRESS: Under the regulations, if
sorueono made a complaint about alleged dumping and you thought
the complaint was patently ridiculous, would you have to do
this s.:tr.e thing?
SECRETARY MACDONALD: No* -Je look at the
validity of the complaint, and we «lso look at the identity
of the complainant, but ha is addressing himself to the ^n"~
c.a:mificc.ition of tto coirplainant~not the merits«
MEMBER OF THE PRESS: I am a little unclear abort
V'our s;'-c tement. You &m Treasury has substantial doubt?
SECRETARY MV'^CMAIxD: As to injury; not a*1 to sales
at l$sn than fair value„ We investigate sal^s at less than

10

^

fair value.
Now, you say we hsyrirt got: substantial doubt as
to sales of less than fair value. At the end of the 30-day
period in which Customs has made what you might call an
"in house" — well, not just an "in house", but checks
preliminary verifications—of more or less raw, unadjusted
data, and has recommended to us--and we have adopted that
recommendation'—that this investigation be informally
initiated.
MEMBER OF THE PRESS: Would you state that in more
direct terms?
SECRETARY MACDONALD: Incidentally — yes, that is
a good pointI Is there anyone here who feels that we have
made a determination that sales of lass than fair
value exist?'
If you dof pleaset you are wrong!
We are nor oj^o^t to initiate _h_ i nve s t icy a % ion to
make that deterzainatioa-at .which time all parties will have
plenty of chance to answer.
MEMBER OF THE PRESS: Hox^ far back will this
'investigation go?
Over what calendar period will you make your
de termination?
SECRETARY MACDONALD: I think ti..^ complaint
roXatus tp the last two years but, normally:. the investigation
wovild .ce for the si^-month period -- straddling t'se f ..ling of

11
tie complaint which was filed on July 8.
MEMBER OF TH3 PRESS: Mr. Secretary, will you detail
your complaint against Canada?
What specific areas and firms will you be investigating?
SECRETARY MACDONALD: We investigate on a
Country by Country basis so, whenever a Complaint is filed
against a particular manufacturer in a Country, we initiate
an investigation relatrng to all manufacturers within that
Country. We will investigate all products that are being
exported.
MEMBER OF THE PRESS: Which manufacturer was
complained against oricinaliy?
SECRETARY MACDONALD: A multitude of them. The Complaint
actually, is a Public Document of Events.
MEMBER OF THE PRtiSS: $ave you made a potential
estimate as to the dollar volume involved here?
SECRETARY MACDOiJALD- Yes.
MEMBER OF THE PRESS: Whac is that?
SECRETARY ]:t\CJOMALD: $7.5 billion.
MEMBER OF THE P3ES3: $7.5 billion in salss at,
allegedly, less than fair value?
SECRETARY IlAC.X>NAL)>s No. Noi Nof That is the total
nvrmt of trade involved.
MEMBER OF THE

PP-ES^J

In calendar '74?

12
SECRETARY MACyt'tSALD: Yes.
;vZMBBR OF THE PRrJSS: Imports?
SECRETARY MACDONALD: Yes.
MEMBER OF TKtf FREES: I understand the White House
asked you to delay thi< contc-rence in order to give the
European Exchange a chance to close.
Is that true?
Do you feel this is going to have a negative impact
on your trading partners, regardless?
SECRETARY bmCDCFlTD: Let's just say we ran into
an Administrative snag:
MR. ARNOLD: It is time for the Wires to go!
All right. Goi
{At this pointf Wire Service r^r rasentatives left
the press briefing.)
MEMBER OF TW1 PRE££:. Mr. Macdraald, did you
300— in your opening staterert—that you will drop the whole
investigation if the InternTitic-nal Trad-3 Commission sxtb-r
stantiates yorr doubts --> ttat there is no injury?
SECRETARY MACDC2?ALD: We have a slightly different
tort than they have* Our t^st is: If '*3 have substantial douot
as to injury, we will ?:;rr<-d it over there. Their test is: If

rlr-'vs i;3 no reasonable i;..di'>?tion of injury after thay make a
30 day quick investigation then they would advise U3 of
ichot faot, ard wa would drcr the; whole thing.

3~
13
MEMBER OF THE PRESS: The whole thing?
SECRETARY MACDONALD: Absolutely!
MEMBER OF THE PRESS: You don't even want to know if
there is dumping, or net?
SECRETARY MACDONALD: It would not be relevant
b-ucause thsre would be no injury,, Both requirements are
necessary before d'orping duti.33 can be assessed.
MEMBER OF THli PRESS: On the question of Canadian
imports, the Canadian Auto Pact — does it not — seems to
treat all North American auto3 as practically under one
umbrella--and many U.S. companies ere, at least, involvedc
How would thc.it be resolved?
SECRETARY MACDONALD: It makes certain imports
and exports duty-free. It does not purport to amend our —
what you might:call ™ Unfair Trad© Laws, including the
Ant i--Dumping Act.
MEMBER OF THE PRESS: But it does recognize the fact
tint many Canadian companies are, in fact, subsidiaries
of American companies?
SECRETARY MACDONALD: That is sort of ~~ I would
not want to quibble with that—but it has certain results
of excluding from dut.ios~~certe-.in shipments.
MEMBER OF Tim PRESS: If that is the situation,
t.!r;n you have U.S. versus German cor^paniosT—or Japanese
corapanios •

14
SECRETARY MCDONALD: I don't think roar conclusion

i.o accurate. .! don't tlirr : that is a recognition that I would
make.
I4EMBER OF THIl PRESS: Mr. Macdonald, can I gee
back to niy earlier questi.cn to you^
Would you explain why Congress, when they wrote
the provisions in the rrrds Act as to the remedy for the
decision of the Treasury,. why, they did not include Unions?
They include< narrfacturers; they included
wholesalers•
SECRETARY MAf;DCHA.LD: Okay. This is an extremely
technical point. Whsr, yc & ere going up on appeal, you are
in a ^judicial'posture. Ka e.re now in a:i ^investigative"
pos-Jture. vvhen you aro in a judicial posture, you have
a classical Anglo Saxon concept of "parties in interest".
Apparently, Congress- wanted to expand — which they did -the number of parties in interest to take appeals from
Dipping determinations, They expanded it.
.MEMBER OF THE P3I2£S: Not to the Unions.
SECRETARY MACDONALD: Okay, On appeals at the
original-investigation-posture--as far as I am aware--there
war* no change* at all made in the law. They are two
oersxertf: animals. In fact, the Treasury Department, under
our own iar/, can investigate and initiate an investigation
w:\thout any complaint at all/

MEMBER OF THE PRESS:

I want to be

perfectly clear

that, when you are naming Countries, you are including all of
the manufacturers within the Country. For example, you are
including Ford and G.M. within Germany; G.M. in Belgium.
SECRETARY MACDONALD: Yes. Exactly/
MEMBER OF THE PRESS: Mr. Macdonald, doesn't the
fact of floating exchange rates alter the nature of dumping/
and complicate the investigation of dumping?
As an example, if the Mark goes down and Volkswagen^just because it cannot change its price every day--keeps its
price stable* for a while, it is less than the home market
value but, really, without an intent to dump.
Do you understand the point?
SECRETARY MACDONALD:. Yes.
I would say that it does complicate the investigation,,
Avd. I would say that if it trrns out that exchange rates
arcs the only cause of a sale at less than fair value, we
have sufficient discretion to go to

a

termination

procedure, after we have xr:£dc- our investigation — if that
can be isolated as the cause.
MEMBER OF THE PRESS: What inputs have you received
from the State Department^ if any?
SECRETARY MACICroliIDs Well, we have been approached
by nur^eroufs foreign Governments and, of coursef all of the
rcpronoi.tatives of the fcraicn •— I should not say all — but

9JJ
16

a --:9?y^-: yy''~%3£> ?tt.tfrr of re.?rssentrvdves of foreign auto
companies rto pointed out some of tna things that have been
pointed out here todcy by sore of you gentlemen, and have--

further—indicated political rami i'icat ions that are involved in
a decision of this sort.
The State Departments of course, is the channel
through which a lot of that coifr.es. We have taken cognizance
of those "Aid iAcs:oire&I! a:ad have advised those Countries
thrt X'jo are ™ at trt treasury Department ~ entrusted with
administering a law--and it is rather a specific law-- and
the investigation that is involved is a rather specific factual
investigation &nd we, <ut the Treasury Depart::-tnt, intend to
ororate under the law.
MEMBER OF THE PRESS: Hah Ambassador Dent's
office also given inputs, so far a.e this relates to the
multi-lateral trade talks* ir Geneva?
SECRETARY MACDONALD: 'r® have kept him fully
advin-Bd I could not answer, really, "YesK to that
question.
MEMBF1. OF THH PR3;i.Ss EGO Canada cut try 1^-put
iaio your investigation at tai£ point'5
SECJtil'-^HY MACDCHA~Ds 9le -have talked with Canada,
MEMBER OF TirlS: PRSSSs Along what lines?
Does Canada rLrim the Artr ?c\at is ir. peine on
tt.:s?

SECRETARY MACDOtTALD:

I &m advised-by Counsel aero--

that the Auto Pact specifically excludes the Anti-Dumping
Act.
MEMBER OF THE PRESS: What has Canada said to you?
SECRETARY MACDONALD: Pretty much the same thing
that I just summarized with respect to most foreign Countries.
MEMBER OF THE PRESS: Mr. Macdonald, would you
endorse the theory that after the United States adopted
the International Anti During Code, that, based on the
legislative experience, there has been a sort of liberalization
of the ca3es — the number of "Injury" findings •— compared
to the time befcre '67?
Would you endorse that theory that there were
relatively more Injury findings by the I.T.C., or the thenTariff CoEnrdssion, than before?
SECRETARY MACDONALD: I think that is something
you really ought to address to the Tariff Commission. I could
•act"endorse*it-~I am not saying it is wrong,
MEMBER OF THE PRESS: Before proceeding to Japan in
your ii^t of Countries, did you get more data, than existed
, (Congressman) „ .
:in the/D-sfit or the U.A.T*. Coiaplr.ints ••?
They were ?.&i.:-:3.v polite, 1 think, cr non-existent,
on the price table for JapanSECRETARY MACDOKALDs The answer —» the .simple
ansuer —- to your question is, "Yes1'. WB got more data. There

18
were some peculiarities involved in the Japanese situation
which were taken into account.
MEMBER OF THE PRESS: Was there any reaction from
the U.K. government?
SECRETARY MACDONALD: Absolutely!
(Laughter)
MEMBER OF THE PRESS: What sort of reaction?
SECRETARY MACDONALD: Well, the same matter —
I think if you don't understand the fact that we have a Statute
that says, "You will commence a 30-day inquiry period. At
the end of 30 days, if you find some verification and reason
to proceed with an investigation, you will investigate,"
it you don't understand that concept, and you look at it as a
purely political matter, you can draw all sorts of conclusions
as to the «U.5.. intention. But the reason that I am sitting
here as an Assistant Secretary . —- not. Secretary Simon/
or someone else~~is an indication that we are proceeding with
this matter as we have proceeded with all of our other matters.
MEMBER OF THE PRESS: What is the British Government's
understanding?
SECRETARY MACDONALD: I think the British Government
UD.dersta.nds that. The^y are extremely competent, :L"i my view.
MEMBER OF THE PR3SS: You mentioned —• there has

b:»on t^rti-ony — ycu talked "-frith U.S. aiitc producers v;he said
there was no injury- -or vh?.t they had doubt£

19
SECRETARY il-A^DONALD: There was no injury, yes.
I don't wr.nt to paraphrase — William Eberly,
President of the Motor Vehicles Association said, "The drop
in domestic sales and the rise in unemployment have not been
caused by the import of motor vehicles in the United States—
as such."
MEMBER OF THE PRESS: Did you speak to G.K.?
To Ford?
If so, to whcm?
SECRETARY MACDONALD: No. That really is a
determination. The Injury determination is really a determination
to be made by the U.S.I.T.C. We make the "sales at less than
th.ir value" judgement.
What we do is, having said that, of course, we have
to, in our own minds, deternine: "Is there something peculiar
about this case that 'it ^uld cause us to send it over for a
particular determination?"
We felt, "that statements of the sort that I have
just que ted., yes. V©g« They go beyond thQ threshhold of
9

creating substantial d.c-ubt.
MEMBER OF TB£ PRESS? Is it unusual to a^k the I.T.C.to do the 3Q-dry preliminary injury s\:udy at this point?
SECRETARY -JACM^ALD 5 This is the sesond time we
have don3 it since t^iv anact^^nt cf the Trade Act.
MEMBER CF THE PFJ2SS • Would yc v. state, yourself ~

20
maybe other people understand it —
ANOTHER MEMBER OF THE PRESS: What was the first time?
SECRETARY MACDONALD: Neoprene rubber from Japan.
They sent it back and said, "Go ahead with the investigation."
MEMBER OF THE PRESS: Would you re-state yourself?
Maybe other people understand it better than I do; but you
state yourself in a negative sense., as to what you are
doing here — that there is a"doubt* and you are /still,
sending it over?
Do you make it absolutely clear, exactly what
you feel is going on, and what you are doing with it?
SECRETARY MACDONALD: Let me try again:
There are two legs to the Anti-Dumping table —
if that is a correct simile. I have a little trouble
visualising that, myself!
(Laughter)
There are two pillars to that particular — I forget
what it is that goes across.
One is sales-at-less-than-fair-value./ One is Injury.
As to 3ales-at-iess-than-fair-value, we have had
allegations of dumping margins. Dumping sales at less-thanfair-value are a fairly substantial percentage and just a
preliminary verification has indicated that we should look into
that aspect of the case.
However, we also just look at this other pillar and

21 ^5
we say, "How about injury? Is there injury alleged?"
That is, in the first instance.
If there is injury alleged: "Is there something
in this whole procedure that should cause us to cut short the
pain that an investigation of this sort inevitably causes to
foreign Countries?"
That is a second assessment in judgemental call
that we make-over here at the Treasury.
And the test, statutorily, is: Is there substantial
doubt as to injury? Not as to sales-at~less~than-fair-valuei
That is over at this other side, now.
We concluded* "Yes", for the reasons I have just
stated: Namely, representatives of the Industry itself
saying, "Our injury is not caused by this problem", and, as
a result of that, we are sending it over to the I.T.C. who
handles that pillar, Ke don1't handle that pillar. That is
their pillarJ
They will make a 30-day investigation into that
particular problem.
MEMBER OF THE PRESS: There were t-*?o matters in
the Dent proposal: one having to do with the Custom's
classification of the £::iiciil Japanese tracks as "Chassis cabs"
r«.ther tha:'.\ "trucks'".
And the other one had. to do with the Custom's —
what 1 think is called rready acceptance- «— of cost valuations

of production costs.
SECRETARY MACDONALD: These are issues that are not
involved in the Dumping at all. There are other questions of
valuation that have arisen.
MEMBER OF THE PRESS: Have you looked at that?
SECRETARY MACDONALD: Yes, we have looked at that.
MEMBER OF THE PRESS: You have not reached any
decision?
SECRETARY MACDONALD: No.
However, we are investigating them, and we have
certain entries — certain automobile imports. Customs is in
a dispute as to several automobile exporters right now
and has those entries open for the reasons — some of the
reasons — that you were just mentioning.
That is another matter, however.
MEMBER OF THE PRESS: Was it triggered by the Dent
thing?
SECRETARY MACDONALD: No. Well, that investigation has
been going on. I think those entries have not been liquidated
~;ince 1972. Some of them may have been. I don8t want to say
it was not. I just don't know. I cannot remember.
MEMBER OF THE PRESS: This is not the investigation
because of the •— in 19 71 — slapping on of the iirport
•surcharge?
SECRETARY MACTONALDs Ho.

Yf
?3
I think they do yrc-date the Doyit inquiry, alchurch
Congressriaxi Dent is foccssing right in on that a::ee. Thrt
is antthsr issvi-r.
2-GrBEh OF Thh PhhtS: Mr0 21^adcnaldf where, s^ctiy,
do you ^v:±.:i the price comparison in the progress froir the
factory — from the manufacturer — to the United states?
SECRETARY MACDONALD: Wholesale. Usually, wholesale
quantity•
MEMBER OF THE PRESS: I see. Naturally, bccf^re any
local taxation in th# Country?
SECRETARY MACDONALD: There are adjustnieirts made for
various taxes in orccr to equats the two sales right back
to the factory.
MEMBER OF THE PRESS: Bi;h after tha imposition of Tr.;
dutyl
SECRF^ARy MACDONALD: Yes. Th^t is backed OUtc
*nreic?ht ±z backed out; differences in quantity?
difference;"; ir style? arrt accoutriraets to the car are
backed out*
MEMl?£;h OF ihh PHBSSs before the imposrition of the
value-added tax?
S&CRhi'hR^ MAC-.DONALD s Thfiit is, of course,, on the

24

idea as to the amount of the dumping margins that you found—
so far—from the raw data?
SECRETARY MACDONALD: Well, the Complaints allege
dumping margins of, I think — in some cases - - up to 70%.
MEMBER OF THE PRESS: Did you say seventy?
SECRETARY MACDONALD: Yes, 70% less than the price
being charged abroad.
I don't know what to say. I stand the danger of
giving you the impression that we confirmed that. Let me
say that we have gst sufficient information to cause us to want
to investigate that^ thoroughly/
MEMBER OF THE PRESS: Mr. Macdonald, do you mean 70%
of the price charged ir the United States, or 70% less than
the. price charged in the United States?
SECRETARY MACDONALD: 70% less.
MEMBER OF THE PRESS: Thank you.
ANOTHER MEMBER OF THE PRESS: Sir* you had the
German Ambassador hera yesterday, or the day before yesterday.
What are the German arguments against this
investigation?
SECRETARY MACDONALD: I think I pretty raech answered
that as to all Countries, They are pointing out both what they
belizve to be legal questions that were raised, and political
questions that are always involved in a proceeding like this.
MEMBER OF THE PRESS^ Thank you.
(Wheteupor;. the prscs h-'-'^fhifT <•»•••;> ^

r;~.

-,.,A*?.A A.

-»-»..

*7
FOR IMMEDIATE RELEASE

August 8, 1975

TREASURY INITIATES INVESTIGATION INTO
ALLEGED DUMPING OF IMPORTED AUTOMOBILES
Assistant Secretary of the Treasury David R. Macdonald
announced today that the Treasury Department is initiating a
formal investigation into allegations that imported automobiles
are being "dumped" on the U.S. market in violation of the
Antidumping Act of 1921. The investigation involving automobiles
from West Germany, the United Kingdom, France, Belgium, Italy,
Sweden, Japan, and Canada will be conducted by the U.S. Customs
Service to determine whether imports from these countries are
being sold in the United States at prices below the prices
charged for the same products in the individual home markets.
At the same time, Mr. Macdonald announced that the Treasury
Department had requested the U.S. International Trade Commission
to conduct a preliminary inquiry to determine whether, based on
the information currently available, there is any reasonable
indication that the U.S. industry is being or is likely to be
injured by reason of these automobile imports. The USITC will
have 30 days within which to conduct an inquiry. If they find
that there is no such reasonable indication, the Customs investigation will be terminated. Mr. Macdonald explained that referral
of the matter by the Treasury to the USITC at the preliminary
stage of the proceedings is a new procedure authorized by the
Trade Act of 1974. He said that recent statements by spokesmen
for the domestic auto industry, minimizing the impact of auto
imports on the current condition of the U.S. industry, had
raised substantial doubt that there is a link between the allegedly dumped imports and the depressed state of the industry, as is
required by the law.
The decision to initiate the investigation should not be
viewed as a determination that dumping exists, Mr. Macdonald
emphasized. The Treasury action only means that a sufficient
amount of information has been received to warrant further, indepth inquiry concerning whether foreign autos are being sold
in this country at "less than fair value". The Treasury must
make a tentative decision by February 7, 1976, unless complexities
in the case require an extension of up to 3 months. If a determination is made that the imports are being sold at "less than
WS-37^
fair value", the case will be referred to the U.S. International
whether
Trade Commission
or not the
for
U.S.
a full
industry
scale is
investigation,
being or is likely
concerning
to be

- 2injured by such imports. If the USITC finds actual or likely
injury, special dumping duties would be assessed on an entryby-entry basis to eliminate any price discrimination.
Mr. Macdonald added that, contrary to recently reported
statements from abroad, the action announced today (1) is
required by law in the event a valid complaint is filed with
the Treasury Department, (2) is fully consistent with the
international obligations of the U.S., and (3) in no way
indicates a decision by the Administration to pursue a "protectionist" international trade policy. U.S. procedures under
the Antidumping Act, which dates from 1921, are well established,
circumscribed by extensive regulations, and in conformity with
the International Anti-Dumping Code.

oOo

DepartmntoftheTREASURY
ASHINGTON, DC. 20220

TELEPHONE W04-2041

August 11, 1975

FOR IMMEDIATE RELEASE

RESULTS OF TREASURYTS WEEKLY BILL AUCTIONS
Tenders for $ 3.0billion of 13-week Treasury bills and for $3.1 billion
of 26-week Treasury bills, both series to be issued on August 14, 1975,
lt
were opened at the Federal Reserve Banks today. The details are as follows:
RANGE OF ACCEPTED
13-week bills
COMPETITIVE BIDS: maturing November 13, 1975
Discount Investment
Price
High 98.406a/ 6.306%
Low
98.390
Average
98.395

Rate
6.369%
6.349%

Rate 1/
6.51%
6.58%
6.56%

26-week bills
maturing February 13, 1976
Price

Discount
Rate

Investment
Rate 1/

96.569
96.525
96.539

6.750%
6.836%
6.809%

7.11%
7.20%
7.17% ,

a/ Excepting 1 tender of $420,000
Tenders at the low price for the 13-week bills were allotted 73%.
Tenders at the low price for the 26-week bills were allotted^ 7%.
TOTAL TENDERS RECEIVED AND ACCEPTED BY FEDERAL RESERVE DISTRICTS:
District

Received

61,710,000
Boston
$
,064,805,000
New York
4
33,985,000
Philadelphia
115,915,000
Cleveland
42,035,000
Richmond
57,350,000
Atlanta
466,200,000
Chicago
50,755,000
St. Louis
28,160,000
Minneapolis
72,105,000
Kansas City
34,835,000
Dallas
San Francisco_ 278,405,000
TOTALS$ 5 > 306 > 260 > 000

Accepted

Received

Accepted

34,665,000
53,915,000 $
$
40,710,000 .$
2,268,150,000
4,392,125,000
2,287,660,000
56,405,000
32,105,000 82,405,000
73,925,000
48,925,000
68,215,000
119,455,000
36,765,000
132,105,000
33,940,000
42,805,000
45,020,000
241,085,000
414,815,000
226,160,000
27,435,000
39,935,000
40,505,000 :
12,000,000
36,440,000
16,160,000
48,585,000 .
29,055,000
24,945,000
26,835,000
23,995,000
16,995,000
217,750,000
349,750,000
132,425,000
$3,001,145,000 b/$5,671,270,000

$3,101,750,000 c/

)/ Includes $ 524,275,000 noncompetitive tenders from the public.
:/ Includes $ 264,005,000 noncompetitive tenders from the public.
L/ Equivalent coupon-issue yield.

FOR A.M. RELEASE AUGUST 12, 197 5
ADDRESS BY THE HONORABLE WILLIAM E. SIMON
SECRETARY OF THE TREASURY
BEFORE THE 3 2nd ANNUAL JUNIOR ACHIEVERS CONFERENCE
BLOOMINGTON, INDIANA, AUGUST 12, 1975
9:00 A.M., C.S.T.
This is a very special and happy occasion for me. During
the last three years that I have spent in Washington, I have come
to believe more and more strongly in the need for fresh vision and
vigorous, dynamic leadership in private industry. Today I am proud
to come here and salute many of the young men and women who will
provide that leadership in the future.
In speaking to you, I am reminded of a young man who was
struggling during the middle of the nineteenth century to establish
himself as a poet. To win recognition, he decided to send a manuscript of his poetry to the giant of American Literature, Ralph
Waldo Emerson.
Emerson read the work, entitled Leaves of Grass, and sent this
note back to the young man:
"Dear Mr. Whitman," he said, "I greet you at the beginning of
a great career."
Emerson was right, of course; Walt Whitman went on to become
one of the most cherished of America's poets.
And so, too, I greet you as members of Junior Achievement at
the beginning of what in many cases will be great careers. Through
your participation in organizations such as Junior Achievement, I
know that you are learning not only the techniques of organizing
and running a successful business venture but that you are also
coming to appreciate the contribution that free enterprise makes
to this great nation.
Your attendance at this year's convention of Junior Achievers
comes at a particularly opportune moment because we will soon
celebrate the 200th anniversary of the Republic. Coming here and
meeting other young men and women from all corners of America,
hearing the Southern drawl and the Midwestern twang, seeing the
fashions from the East and hearing the spicey stories about what
WS-373

- 2it's like out West, each of you must be deepening your understanding of America and the rich, incredible diversity which makes
us such a restless and energetic people. This is a good time for
all of us to reflect on the American experience and what it means.
Some of you may remember the first pilgrims who came to these
shores. Crossing the Atlantic to Plymouth Rock, huddled together
against the winds of adversity, they heard John Winthrop deliver one
of the most famous sermons in our history.
In the New World, Winthrop told them, "we must consider that
we shall be a city upon a hill. The eyes of all people are upon
us ... we shall be made a story and a byword through the world."

And that has been the American experience: to be that city
upon a hill, a bright jewel in the galaxy of nations that holds
out to all mankind the dream of "life, liberty, and the pursuit
of happiness."
What has made this such a great nation? What has made people
talk about the American Dream? Has it been the land? To be sure,
we have been blessed by an abundance of natural resources, but in
the Soviet Union we see a land mass that is much larger than our own,
is equally well endowed, and yet the Russian land yields a smaller
harvest of goods for its people. Today the Soviets turn to the
United States for the grain they so badly need.
Does our secret lie in the talent of our people? To be
sure, we are blessed with one of the largest and most talented
populations that the world has ever known, but in China we see a
population that is four times as large as our own, whose civilization!
was developed far in advance of our own, and yet today their standard
of living is far below our own.
Our land and our people, then, have both been essential parts
of the American story, but they are not the whole story. A third
ingredient -- the ingredient that is missing in the Soviet Union
and China, the ingredient that has always made us different -- has
been our freedom.
The early Americans streamed to these shores in search of
freedom -- freedom of religion, freedom of speech, freedom of the
press, freedom of assembly, and freedom to seek their fortunes
without fear or favor of the government. Each of these freedoms
was planted firmly in our Constitutional soil; each grew and bore
fruit; but each has become such a familiar part of our landscape
that I now wonder whether we take them too much for granted.
Those of you who have had the privilege to travel in other
lands have seen how precious freedom has become in the world today.
Only a tiny handful of nations now permit their citizens the liberty
we enjoy here. It is no accident that in every country where people
have been given a free choice between communism and democracy,
risked
they have
their
voted
lives
for in
democracy.
desperate And
attempts
thousands
to escape
of people
from have
tyranny
gladly
into

S"
- 3freedom.
There is nothing plastic or artificial about freedom, nor is
there any guarantee of its permanency. As Dwight Eisenhower once
said, "Freedom has its life in the hearts, the actions, and the
spirits of men, and so it must be daily earned and refreshed -- else
like a flower cut from its lifegiving roots, it will wither and die."
I worry greatly today about the survival of one of the most
vital but least understood of our freedoms in America: our freedom
of enterprise. The free enterprise system is the foundation of our
economy, the rock upon which we have built our earthly kingdom.
It is the system of free enterprise that has summoned forth the
genius of our people -- young men and women like you who wanted to
make a difference in the world. One of our greatest inventors,
Ben Franklin, was a printer's appretice at 12, was writing and
selling ballads at 15, and was publishing his own newspaper less
than a decade later. Eli Whitney invented the cotton gin within a
year after he graduated from college. By the age of 26, John D.
Rockefeller had emerged from the obscurity of being a sales clerk
to owning his own oil refinery. At the same time, 10-year-old
Thomas Edison -- expelled from school because his teacher thought
he was retarded -- was working in his own chemistry lab and by the
time he was 30, had invented the phonograph. And at the age of 13,
Andrew Carnegie went to work in a cotton factory - - a poor immigrant
from Scotland.
It is the system of free enterprise that has also provided
productive jobs for the great majority of workers, fulfilled basic
wants, enabled people to live more satisfying lives, and enriched
the human experience. The cotton gin that Eli Whitney invented not
only increased our cotton exports by more than a hundred fold within
less than 20 years, but it also provided inexpensive clothing to
millions of people. The mass production introduced by Henry Ford
gave the world a cheap form of transportation that has been crucial
for our industrial progress and has provided us with personal mobility
that would have seemed impossible a century ago. And the little
Brownie camera that George Eastman marketed in 1895 opened the way
to a whole new art form that has given us all an extra sense of
understanding and joy.
Nor have such advances been limited to work done by men. There
have been a countless number of women whose stories are not as well
known but have also been a vital part of our history -- women such
as Eliza Pinckney whose perfection of methods for growing the indigo
plant gave the Carolinas a product that was the main staple of their
economy before the Revolutionary War. Each of these men and women
enjoyed and thrived on the freedom provided by our economic system.

- 4It is, indeed, the system of free enterprise that has given
this country the greatest prosperity and the highest standard of
living ever known to man:
-- In the last 15 years, poverty in this nation has been cut
in half.
-- Our farms today are harvesting more than twice as much
grain as they were a quarter of a century ago -- and with far fewer
people to get the job done. Each American farmer now feeds as
many as 50 of his fellow citizens with one of the most nutritious
diets anywhere in the world.
-- Our technology has made us the only nation on earth to place
a man on the moon -- and we've done that six times now.
-- Our medical science has extended average life expectancy
by more than 10 years since the turn of the century.
-- Our technology has provided us with more leisure time -time for recreation, hobbies and for being with friends -- than
any society since the days of the ancient Greeks.
-- And our economic wealth has allowed us to give other nations
over $110 billion in food and economic assistance in the last 30 years
generosity that finds no parallel in world history.
It is also the system of free enterprise that has fired the
imagination and determination of our people. No mountain has ever
been too high nor has any ocean ever been too wide to cross. To
cite but one example, you may recall that a century ago the Civil
War practically destroyed the country's whaling fleet, bringing a
collapse to the industry that provided the major source of lighting.
Within a few years the price of whale oil shot up from a few pennies
to over $2 a gallon. Cries went up across the land, "We are ruined."
What happened? Men with vision who had discovered a way to
make kerosene began marketing kerosene lamps in place of whale oil
lamps and before the end of the century two new industries -petroleum and electrical -- were rapidly developing. As for whale
oil lamps, they were sent to the museum - - a useful reminder of how
our system has been able to respond to crises.
It is also the system of free enterprise that has taught us
never to give up, never to fall prey to the cynics, and the preachers
of gloom and doom. That fine old gentleman, Thomas Edison, is said
to have tried 586 experiments to find the right filament for an
electric light. None of them worked. "It's a shame," his assistant
told him, "to have tried 586 times and failed."
"But we haven't had 586 failures," Edison replied.
"But, sir, we have," cried the assistant.

- 5"No," said Edison, "we now know 586 ways that won't work and
won t have to be tried again." Edison would not allow himself to
be defeated, and eventually, of course, he made one of those
breakthroughs that has changed the course of civilization. Edison
was never a quitter. To him, as he once said, "genius is one percent
inspiration and 99 percent perspiration."
Yet today, I submit to you that it is this same system of free
enterprise -- the system that has given us so much -- that has been
placed in greater danger than at anytime in my memory. For years
America has be-en drifting away from her moorings, lured by the false
promise of those who say that the government can do the job better
than the people themselves and that we can no longer trust the individual to look out for himself.
h
We see the threat to free enterprise in the growing domination
of government spending within our economy. Back in the 1920s,
•:L2 cents out of every dollar spent in the United States was spent by
the government. Today 33 cents out of every dollar is spent by the
government. And if these trends continue, before the end of this
•:entury -- when most of you will still be in the prime of life -i;he government could be spending as much as 60 cents out of every
lollar. If we ever reach that dreaded day when you spend half of
;very day just earning money for the government, you had better have
tt'our hand on more than your wallet: you will also find that your
personal and political freedoms may be stolen. As President Ford ha
aid, "a government big enough to give us everything we want is a
overnment big enough to take from us everything we have."
Why has government spending exploded? Because, I would suggest,
e have been willing to assign to the government the responsibility
or solving many of the problems that people should be solving for
hemselves. We being with the best of intentions but wind up with
ocial programs that are spinning out of control. The food stamp
rogram began as a small, $14 million experiment in 1962. By 1976,
t will cost over $6.6 billion a year -- a 47,000 percent increase -id it is a well-known haven for the chislers and rip-off artists.
ily a few weeks ago, a national magazine advertised a booklet that
old people how to obtain food stamps even if they earned as much as
L6,000 a year. So much for the spirit of self-reliance.
i We also see the threat to free enterprise arising in the army of
Wernment regulators that has been marshalled along the banks of the
>tomac. The regulators are a little different from the traditional
ireaucrat. There was a time when a story about Pope John rang
:ue for Washington as well. The Pope was asked by a visitor how
j',ny people worked in the Vatican. He thought for a moment and
swered, "I would say about half." The regulators are changing that
adition in Washington: they are all working full-time, and they
em to be working overtime on the business community.
f

- 6Let's suppose for a moment that you lived in Chicago and borrowed
some money to start a small trucking business to carry freight to
Cleveland, Ohio. That seems easy enough: Cleveland is not tar from
Chicago. Should you then rush out and invest in a few trucks? Sorry,
the first thing you should do is file a request with the Interstate
Commerce Commission. That will cost you $350 in filing tees, and
you'll probably need a private lawyer to boot. Well, you say, the
request must be only a formality and you can get started in a tew
weeks time. Sorry, but the request will almost inevitably lead to
legal hearings and you will have to prove that existing service to
Cleveland is inadequate and that existing carriers cannot be made
to provide it. The average request now takes 10 months to process
and some have been known to take over three years. Protests by
existing carriers often lead the ICC to give only restricted approval
to requests from new carriers and, especially along well-traveled
routes, to deny many requests altogether. Undaunted, you wait it
out, obtain your approval, and decide that the best way to get a
break on your competitors is to reduce the prices you charge to
your customers. Sorry, your proposed rate reduction will probably
be protested by other carriers and then suspended by the ICC. In
effect, the government will force you to charge higher prices, even
though you could afford to charge lower ones. Nonetheless, even with
the higher rates you win a few customers with exceptionally good
service, and new customers appear, asking that you carry their goods
from Cleveland back to Chicago. Good, you say, your business is
expanding. Sorry, the ICC won't allow it unless your original
certificate specifically authorizes you to carry those products on
the backhaul to Cleveland. The ICC requires instead that you drive
back to Chicago with an empty truck - - a practice that is still
frequent even in a day of high cost energy. Despite all of these
problems, you persevere and customers soon want you to carry their
goods not only to Cleveland but also downstate to Columbus, Ohio.
Sorry, but your ICC certificate says you can only go between Chicago
and Cleveland; to drive to Columbus, you'll have to get a new
certificate, and that means you'll have to start the whole process
all over again -- lawyers, forms hearings, rate settings, the works.
At that point, you might be justified in throwing up your hands and
sending off for that pamphlet which tells you how to collect food
stamps. I wish that I were exaggerating the complexities and
frustrations of dealing with the government bureaucracy, but
I'm sad to say that it's all true.
In this and a countless number of other ways, the Government's
regulatory process has become so heavy handed that it is beginning
to strangle the free enterprise system in this country. Nor do
regulations provide much help for consumers, for they breed inefficiency and run up operating costs -- costs that reflect themselves
ment
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r^
- 7Most of our major public institutions in this country -- the
government, our schools and our places of worship -- have all
declined in public esteem in recent years, but none has suffered as
severe a drop as business. Young people in particular show a
dismaying lack of trust in the business community: to many of your
peers, profits are not properly understoodtas the basis for creating
new jobs but as an example of human greed; corporations are thought
to be raping the environment; and big oil companies are said to be
conspiring against the consumer. The misconceptions that exist
about business today are staggering. A recent poll conducted by
George Gallup among college students found that the average estimate
of business profits was 45 cents on every dollar; in reality, profits
are only one-tenth that amount. It's that kind of misunderstanding
which has led to laws in the United States that impose a heavier
tax burden on corporations than do the tax laws of almost any other
major country in the world.
Some two hundred years ago, when the founding fathers gathered
in Philadelphia, there was a great deal of secrecy about the
constitution they were drafting. As their meetings broke up, a
woman rushed up to Ben Franklin and asked, "Well, Doctor, what have
we got, a republic or a monarchy?"
Franklin looked at her a second and then answered, "A Republic,
Madam, if you can keep it."
That, my friends, is the question we face today: can we keep
this great free enterprise system that our forefathers helped to
provide for us in the early days of our nation? Two hundred years
ago, when America fought for her independence, do you realize what
that struggle was all about? Economic freedom -- that was the
central issue. Now, as we celebrate our Bicentennial, it is certainly
ironic that economic freedom has become a central issue once again -and once again, we must fight to secure our liberties.
Let us not deny that there are flaws in this system. It does
not provide all of the answers to our problems and it creates
problems of its own. But it has proved over and over again in history
that it provides greater opportunity for career development and
personal fulfillment, greater material wealth for more people, and a
better guarantee of our personal and political freedoms than any other
system ever known.
Instead of blindly condemning the system, let us open our eyes
to its faults and work to correct them. Instead of tearing down the
foundations of America, let us build upon them. And instead of turning
our backs and dropping out when the going is too rough for any one of
us, let us unite and join forces so that we will have the strength
of ten.
In many ways, I find that young people are way out in front of
the rest of society. You insist upon straight answers. You will
no longer accept rhetoric in place of reality, promises in place

- 8of performance. If I understand the voice of the young, you are
saying that our loss of faith in our ideals does not mean that the
ideals have failed but that we have failed to live up to them.
And a growing number of young people are beginning to recognize
the grave dangers which overweening governmental power poses to
their own hopes for personal fulfillment. Through all the ages of
man, one of the greatest threats to individual freedom and individua
progress has been concentrated power -- whether that power has
resided in the State, the church, big business, big labor, or whatevi
Now more young people are frequently telling us -- and rightly so,
I believe -- that our democracy's vast and growing governmental
machinery is rapidly becoming a new menace to individual freedom in
the United States.
In my generation, there are many men and women who are struggle
to reform and preserve the democracy that you will inherit. We are
trying to introduce a greater sense of discipline in government
spending so that our Nation will not drown in the red ink of budget
deficits and there will be enough money to invest in the future. We
trying to lift the dead hand of governmental regulation so that the
spirit of free enterprise can flourish again. And as we work to end
those abuses which do exist in the business community, we are also
trying to educate more Americans about the unparalleled virtues of 01
political and economic system.
Yet my generation knows full well that even if we can stop the
tide running toward a government managed economy, it will be up to
your generation to reverse that tide and to rebuild and revitalize
our democracy for the twenty-first century. Our challenge is a
great one, but yours perhaps will be greater still. The world will
long remember the chapter that you write into human history.
There is an old, familiar story -- perhaps you have heard it -about a wise man in Damascus who could answer any riddle in life.
One day a young boy decided to play a trick on the old man. The
boy said to himself: "I will capture a bird, hold it cupped in my
hand, and ask the old man if it is dead or alive. If he says dead,
I shall let it fly away, but if he says alive, I shall crush it in
my hands. The old man shall certainly give me the wrong answer."
So the young boy caught a bird and went to the wise old man.
"Is the bird dead or alive?" he asked.
"My son,"said the man, "the answer to that question is in your
hands."
Shall freedom live or perish in America? My friends, the answe
to that question is in your hands.
Thank you.
- oOo -

Departmental theTREASURY
HINGTON, D.C. 20220

TELEPHONE W04-2041

FOR RELEASE AT 4:00 P.M.

August 12, 1975

TREASURY'S WEEKLY BILL OFFERING
The Department of the Treasury, by this public notice, invites tenders for
two series of Treasury bills to the aggregate amount of $6,300,000,000 , or
thereabouts, to be issued August 21, 1975,

as follows:

91-day bills (to maturity date) in the amount of $3,100,000,000, or
thereabouts, representing an additional amount of bills dated May 22, 1975,
and to mature November 20, 1975 (CUSIP No. 912793 XY7), originally issued in
the amount of $2,800,560,000, the additional and original bills to be freely
interchangeable.
182-day bills, for $3,200,000,000, or thereabouts, to be dated August 21, 1975,
and to mature February 19, 1976 (CUSIP No. 912793 YU4).
The bills will be issued for cash and in exchange for Treasury bills maturing
August 21, 1975,

outstanding in the amount of $5,305,370,000, of which

Government accounts and Federal Reserve Banks, for themselves and as agents of
foreign and international monetary authorities, presently hold $2,977,265,000 .
These accounts may exchange bills they hold for the bills now being offered at
the average prices of accepted tenders.
The bills will be issued on a discount basis under competitive and noncompetitive bidding, and at maturity their face amount will be payable without
interest.

They will be issued in bearer form in denominations of $10,000,

$15,000, $50,000, $100,000, $500,000 and $1,000,000 (maturity value), and in
book-entry form to designated bidders.
Tenders will be received at Federal Reserve Banks and Branches up to
one-thirty p.m., Eastern Daylight Saving time, Monday, August 18, 1975.
Tenders will not be received at the Department of the Treasury, Washington.
Each tender must be for a minimum of $10,000. Tenders over $10,000 must be in
multiples of $5,000.

In the case of competitive tenders the price offered must

be expressed on the basis of 100, with not more than three decimals, e.g., 99.925.
Fractions may not be used.
Banking institutions and dealers who make primary markets in Government

(OVER)

-2securities and report daily to the Federal Reserve Bank of New York their positioi
with respect to Government securities and borrowings thereon may submit tenders
for account of customers provided the names of the customers are set forth in
such tenders.

Others will not be permitted to submit tenders except for their

own account.

Tenders will be received without deposit from incorporated banks

and trust companies and from responsible and recognized dealers in investment
securities.

Tenders from others must be accompanied by payment of 2 percent of

the face amount of bills applied for, unless the tenders are accompanied by an
express guaranty of payment by an incorporated bank or trust company.
Public announcement will be made by the Department of the Treasury of the
amount and price range of accepted bids.

Those submitting competitive tenders

will be advised of the acceptance or rejection thereof.

The Secretary of the

Treasury expressly reserves the right to accept or reject any or all tenders,
in whole or in part, and his action in any such respect shall be final. Subject.
to these reservations, noncompetitive tenders for each issue for $500,000 or less
without stated price from any one bidder will be accepted in full at the average
price (in three decimals) of accepted competitive bids for the respective issues.
Settlement for accepted tenders in accordance with the bids must be made or
completed at the Federal Reserve Bank or Branch on August 21, 1975,

in cash or

other immediately available funds or in a like face amount of Treasury bills
maturing
ment.

August 21, 1975.

Cash and exchange tenders will receive equal treat-

Cash adjustments will be made for differences between the par value of

maturing bills accepted in exchange and the issue price of the new bills.
Under Sections 454(b) and 1221(5) of the Internal Revenue Code of 1954, the
amount of discount at which bills issued hereunder are sold is considered to
accrue when the bills are sold, redeemed or otherwise disposed of, and the bills
are excluded from consideration as capital assets.

Accordingly, the owner of

bills (other than life insurance companies) issued hereunder must include in his
Federal income tax

return, as ordinary gain or loss, the difference between

the price paid for the bills, whether on original issue or on subsequent purchase,
and the amount actually received either upon sale or redemption at maturity
during the taxable year for which the return is made.
Department of the Treasury Circular No. 418 (current revision) and this noti<
prescribe the terms of the Treasury bills and govern the conditions of their
issue.
Branch.

Copies of the circular may be obtained from any Federal Reserve Bank or

FOR RELEASE AT 4:00 P.M.

August 14, 1975

TREASURY'S 52-WEEK BILL OFFERING
The Department of the Treasury, by this public notice\ invites tenders
for 364-day Treasury bills to be dated
August 24, 1976

August 26, 1975,

and to mature

(CUSIP No. 912793 ZRQ . The bills will be issued for cash

and in exchange for Treasury bills maturing August 26, 1975.
Tenders in the amount of $2,210 million, or thereabouts, will be accepted
from the public, which holds $2,205 million of the maturing bills.
Additional amounts of the bills may be issued at the average price of
accepted tenders to Government accounts and Federal Reserve Banks, for
themselves and as agents of foreign and international monetary authorities,
which hold $598

million of the maturing bills.

The bills will be issued on a discount basis under competitive and
noncompetitive bidding, and at maturity their face amount will be payable
without interest.

They will be issued in bearer form in denominations of

$10,000, $15,000, $50,000, $100,000, $500,000 and $1,000,000 (maturity value)
and in book-entry form to designated bidders.
Tenders will be received at Federal Reserve Banks and Branches up to
one-thirty p.m., Eastern Daylight Saving time, Wednesday, August 20, 1975.
Tenders will not be received at the Department of the Treasury, Washington.
Each tender must be for a minimum of $10,000. Tenders over $10,000 must be
in multiples of $5,000.

In the case of competitive tenders the price offered

must be expressed on the basis of 100, with not more than three decimals, e.g.,
99.925.

Fractions may not be used.

Banking institutions and dealers who make primary markets in Government
securities and report daily to the Federal Reserve Bank of New York their
positions with respect to Government securities and borrowings thereon may
submit tenders for account of customers provided the names of the customers
are set forth in such tenders.

Others will not be permitted to submit

tenders except for their own account.

Tenders will be received without

(OYER)

-2deposit from incorporated banks and trust companies and from responsible
and recognized dealers in investment securities,

Tenders from others must

be accompanied by payment of 2 percent of the face amount of bills applied
for, unless the tenders are accompanied by an express guaranty of payment
by an incorporated bank or trust company.
Public announcement will be made by the Department of the Treasury of
the amount and price range of accepted bids.

Those submitting competitive

tenders will be advised of the acceptance or rejection thereof.

The Secretary

of the Treasury expressly reserves the right to accept or reject any or all
tenders, in whole or in part, and his action in any such respect shall be
final.

Subject to these reservations, noncompetitive tenders for $500,000

or less without stated price from any one bidder will he accepted in full at
the average price (in three decimals) of accepted competitive bids. Settlement for accepted tenders in accordance with the bids must be made or
completed at the Federal Reserve Bank or Branch on

August 26, 1975,

in

cash or other immediately available funds or in a like face amount of Treasury
bills maturing
equal treatment.

August 26, 1975.

Cash and exchange tenders will receive

Cash adjustments will be made for differences between the

par value of maturing bills accepted in exchange and the issue price of the
new bills.
Under Sections 454(b) and 1221(5) of the Internal Revenue Code of 1954
the amount of discount at which bills issued hereunder are sold is considered
to accrue when the bills are sold, redeemed or otherwise disposed of, and the
bills are excluded from consideration as capital assets. Accordingly, the
owner of bills (other than life insurance companies) issued hereunder must
include in his Federal income tax return, as ordinary gain or loss, the
difference between the price paid for the bills, whether on original issue
or on subsequent purchase, and the amount actually received either upon sale
or redemption at maturity during the taxable year for which the return is
made.
Department of the Treasury Circular No. 418 (current revision) and this
notice, prescribe the terms of the Treasury bills and govern the conditions
of their issue.

Copies of the circular may be obtained from any Federal

Reserve Bank or Branch.

^x
Contact:

FOR IMMEDIATE RELEASE

L. F. Potts
x2951
August 14, 1975

ANTIDUMPING INVESTIGATION INITIATED ON KNITTING
MACHINERY FOR LADIES' SEAMLESS HOSIERY FROM ITALY
Acting Assistant Secretary of the Treasury James B.
Clawson announced today the initiation of an antidumping
investigation on imports of knitting machinery for ladies'
seamless hosiery from Italy.
Notice of this action will be published in the Federal
Register of August 15, 1975.
The Treasury Department's announcement followed a summary
investigation conducted by the U.S. Customs Service after
receipt of a petition alleging that dumping was occurring in
the United States. The information received tends to indicate
that the prices of the merchandise to unrelated U.S. purchasers
are less than the constructed value.
Imports of the subject merchandise from Italy during
CY 1974 were valued at roughly $2.25 million.

Contact:

FOR IMMEDIATE RELEASE

R. B. Self
x8256
August 14, 1975

TREASURY ANNOUNCES COUNTERVAILING DUTY
INVESTIGATIONS ON CHEESE FROM FINLAND AND SWEDEN
Assistant Secretary of the Treasury David R. Macdonald
announced today that the Treasury Department is initiating
investigations under the Countervailing Duty Law against
imports of cheese from Finland and Sweden. A "Notice of
Receipt of Countervailing Duty Petition and Initiation of
Investigation" will be published on these cases in the Federal
Register of August 15, 1975.
Under the Countervailing Duty Law (19 U.S.C. 1303) the
Secretary of the Treasury is required to assess an additional
(countervailing) duty on imported merchandise equal to the
amount of the "bounty or grant" which has been paid or bestowed
on such merchandise. The Treasury Department must issue a
preliminary determination as to whether or not a "bounty or
grant" is being paid or bestowed on cheese from Finland by no
later than December 10, 1975, and on Swedish cheese by no later
than December 18, 1975. Final determinations must be issued
on Finland by no later than June 10, 1976, and Sweden by no
later than June 18, 1976.
During 1974, imports of cheese from Finland were valued
at $11.2 million. Swedish cheese imports during the same year
were $1.5 million.
In another action under the Countervailing Duty Law,
Mr. Macdonald announced that the period of time for written
views provided in a series of preliminary determinations
published in the June 30 and July 3, 1975 Federal Register
would be extended until September 3, 1975.

/ 6rt£^*Z

->M

7J>

7. tV

70
?//?/
Cfr5y^fr

?-^2-

9<9
FOR IMMEDIATE RELEASE August 14, 1975
RESULTS OF AUCTION OF 2-YEAR TREASURY NOTES
The Treasury has accepted $2.0 billion,of the $4.9 billion of
tenders received from the public for the 2-year notes auctioned today.
The range of accepted competitive bids was as follows:
Lowest yield 8.15% 1/
Highest yield
Average yield

8.29%
8.25%

The interest rate on the notes will be 8-1/4%. At the 8-1/4% rate,
the above yields result in the following prices:
Low-yield price 100.180
High-yield price
Average-yield price

99.926
99.998

The $2.0 billion of accepted tenders includes 27% of the amount of
notes bid for at the highest yield and $0.5 billion of noncompetitive
tenders accepted at the average yield.
In addition, $10 million of tenders were accepted at the averageyield price from Government accounts and from Federal Reserve Banks
for themselves and as agents of foreign and international monetary
authorities.
1/ Exoepting 17 tenders totaling $9,920,000

Contact:

FOR IMMEDIATE RELEASE

L. F. Potts
x2951
August 15, 1975

TREASURY ANNOUNCES TENTATIVE
REVOCATION OF DUMPING FINDING ON
POTASSIUM CHLORIDE FROM FRANCE
Acting Assistant Secretary of the Treasury James B.
Clawson announced today a tentative determination to revoke a
finding of dumping in the case of potassium chloride, otherwise
known as muriate of potash, from France under the Antidumping
Act, 1921, as amended. Notice of this decision will appear in
the Federal Register of August 18, 1975. A finding of dumping
with respect to potassium chloride from France was published
in the Federal Register of December 19, 1969.
The Federal Register notice of August 18, 1975, will state
in part the finding that the sole exporter, Societe Commerciale
des Potasses et de 1'Azote, previously known as Societe
Commerciale des Potasses d'Alsace, is no longer selling, or
likely to sell, potassium chloride to the United States at less
than fair value and that assurances have been received that
future sales of potassium chloride to the United States will
not be made at less than fair value.
There were no imports of potassium chloride from France
during the period January 1973 through March 1975.

"•• W W — J ~

Departmental theJREASURY
iwrrmw DC.
nr ormn
HINGTON,
20220

TPI EDunwc MUHA on>ii
TELEPHONE
W04-2041

j|
UV-

FOR IMMEDIATE RELEASE

August 18, 1975

RESULTS OF TREASURY'S WEEKLY BILL AUCTIONS
Tenders for $3.1 billion of 13-week Treasury bills and for $3.2 billion
of 26-week Treasury bills, both series to be issued on August 21, 1975,
were opened at the Federal Reserve Banks today. The details are as follows:
RANGE OF ACCEPTED
13-week bills
COMPETITIVE BIDS: maturing November 20, 1975
Price

Discount
Rate

Investment
Rate 1/

High
Low
Average

98.381a/ 6.405%
98.363
6.476%
98.369
6.452%
a/ Excepting 1 tender of $140,000
¥/ Excepting 1 tender of $605,000

6.62%
6.69%
6.67%

26-week bills
maturing February 19, 1976
Price
96.478b/
96.450
96.461

Discount
Rate
6.967%
7.022%
7-000%

Investment
Rate 1/
7.34%
7.40%
7.38%

Tenders at the low price for the 13-week bills were allotted 15%.
Tenders at the loxv price for the 26-week bills were allotted 97%
TOTAL TENDERS RECEIVED AND ACCEPTED BY FEDERAL RESERVE' DISTRICTS:
District

Received

Boston
43,785,000
$
New York
,800,020,000
Philadelphia
33,800,000
Cleveland
55,595,000
Richmond
46,460,000
Atlanta
41,890,000
Chicago
296,420,000
St. Louis
51,225,000
Minneapolis
22,685,000
Kansas City
64,805,000
Dallas
32,405,000
San Francisco 243,475,000
TOTALS$4,732,565,000

Accepted
$
33,055,000
2,456,995,000
28,800,000
45,595,000
33,760,000
38,940,000
183,420,000
36,405,000
14,285,000
49,525,000
23,405,000
156,385,000

Received
$
55,905,000
4,420,095,000
59,515,000
159,610,000
57,085,000
39,300,000
699,055,000
52,005,000
46,545,000
26,355,000
31,335,000
269,290,000

$3,100,570,000 c/ $5,916,095,000

Accepted
$
18,755,000
2,278,245,000
44,515,000
78,860,000
31,270,000
31,400,000
543,405,000
44,555,000
28,395,000
18,490,000
11,835,000
70,605,000
$3,200,330,000 d/

£/ Includes $484,185,000 noncompetitive tenders from the public.
£/ Includes $232,550,000 noncompetitive tenders from the public.
1/ Equiyalent coupon-issue yield.

FOR RELEASE AT 12:00 NOON EDT
STATEMENT OF SIDNEY L. JONES
ASSISTANT SECRETARY OF THE TREASURY FOR ECONOMIC POLICY
BEFORE THE
ANNUAL MEETING OF THE AMERICAN ACCOUNTING ASSOCIATION
TUCSON, ARIZONA
AUGUST 19, 1975
ECONOMIC POLICY AT THE TURNING POINT
The famous author George Santayana once wrote: "Those who
cannot remember the past are condemned to repeat it." Analysis
indicates that each repetition requires a higher price to be
paid. While public attention is focused on current developments,
as the economy moves from severe recession into moderate recovery,
the major challenge is to plan beyond existing problems and uncertainties. Economic policies at this turning point must concentrate on the persistent problems of inflation, excessive
unemployment, low productivity, capital formation, energy resource development and conservation and international economic
instability.
Thirty years ago the Employment Act of 1946 declared the
objective of national economic policy to be: "To promote maximum
employment, production, and purchasing power" through actions
consistent with "other essential considerations of national
policy" in ways "calculated to foster and promote free competitive
enterprise and the general welfare . . . . " Within this general
framework specific fiscal and monetary policies have achieved
mixed economic and social results with occasional recessions to
remind us that economic growth is not guaranteed.
The United States has generally experienced rising output,
expanding personal consumption, relatively low levels of inflation
and growing employment opportunities. At the same time, the
dominant influence of rising expectations has created a confrontation between two basic economic truths: (1) the list of
claims against the national output of goods and services is
literally endless; and (2) human, material and capital resources
are limited even in the advanced U. S. economy. This obvious
contradiction requires a more careful ranking of claim priorities
and effective management of economic policies. In particular, we
need more stable fiscal and monetary programs which do not overreact to fluctuating economic developments. Over the past decade
WS-375
recession and expansion trends have too often been exaggerated
by
a problem
frequentoffine-tuning
deciding what
policy
to do
adjustments.
as it is oneIt
ofissustaining
not so much
basic

0
- 2 policies long enough to encourage stable growth and longerterm planning.
I. Current Economic Outlook
Current policy decisions must begin with an understanding
of the background and current status of the economy. During
the mid-1960*s the simultaneous escalation of public spending
for the Vietnam War and various social programs combined with
a capital investment boom in the private sector to overheat
the economy and create accelerating inflation pressures. That
rapid expansion was followed by a relatively mild recession
and gradual improvement in reducing inflation. Then a sharp econoroi
recovery from 1971 through 1973 resulted in an annual rate of
increase in the "real" GNP of 5.5 percent which was well above
the long-term capacity of the U. S. economy to expand real
output approximately 4 percent each year. During that same
three-year period the average annual increase in the GNP price
deflator was 4.7 percent and unemployment declined from 6 percent to 4.6 percent by October 1973 as 7.2 million additional
people were employed. The trade deficits of 1971 and 1972 were
reversed and a small surplus was reported in 1973. In general,
the performance of the U. S. economy was impressive throughout
that period but the pace of expansion could not be sustained.
The housing and automobile industries began to falter as inflation surged upward early in 19 73. Raw material and productive
capacity shortages also restricted growth. Finally, the oil
embargo declared against the United States in October 1973
disrupted economic activity and created great uncertainties.
In the first quarter of 19 74 real output declined sharply
at a 7.0 percent seasonally adjusted annual rate. The economy
then stabilized temporarily in mid-year before rapidly deteriorating into a severe recession in the fall as residential construction,
automobile sales, business investment, and consumer spending all
declined. During the last three months of 19 74 real output fell
at a 9.0 percent seasonally adjusted annual rate and it became
clear that economic policies had to focus on reversing the sharp
deterioration in output and final sales without abandoning the
necessary effort to control the double-digit inflation which had
been largely responsible for the serious erosion of home building*
consumer spending and business investment.
By yearend 19 74 some analysts believed that the sharp
deterioration in economic activity would continue leading to a

- 3 world-wide depression comparable to the traumatic experiences
of the 1930's. Others argued that economic recovery would begin
long before such catastrophic developments occurred. The
Administration based its policy recommendations on analysis
that a turning point would occur about mid-year if three fundamental adjustments could be accomplished: (1) the unwanted
accumulation of inventories could be cleared out and new orders
increased; (2) "real incomes" of consumers could be restored by
significantly reducing the level of inflation and initiating
tax reductions and rebates; and (3) the "lay-off rate"—the
number of workers losing their jobs—could be reduced so that
unemployment would stop rising so rapidly and consumer confidence
could be strengthened.
During the first quarter of 1975 real output of goods and
services continued to decline at a seasonally adjusted annual
rate of 11.4 percent but economic conditions were already beginning
to shift. During those first three months of 1975 personal consumption, net exports of goods and services and government spending
at all levels reported strong gains. Most of the economic weakness was concentrated in the private investment sector where
residential construction and business spending declined and a
massive turnaround in inventories occurred. During the last
three months of 1974 unwanted inventories were accumulated at a
seasonally adjusted annual rate of $18 billion. In the first
quarter of 19 75 the situation was reversed as inventories were
liquidated at an adjusted annual rate of $19 billion. Since final
sales were basically flat, the severe drop in total output reported during the first three months of this year was a direct
result of the large swing in inventories which was a necessary
prereguisite for future recovery.
As the spring progressed other signals that an economic
adjustment was occurring became evident. The current rate of
consumer price increases dropped from the double-digit level of
1974 to a 6 to 7 percent zone and the Tax Reduction Act of 1975
was finally passed in March. As a result, real disposable
personal income (stated in constant dollars) increased at a
seasonally adjusted annual rate of 21.5 percent during the second
quarter of 1975 following five consecutive quarterly declines.
This improvement was reflected in strong retail sales. The
"lay-off" rate declined steadily throughout the first half of
1975, employment began rising again in April and the average
number of hours worked and the amount of overtime increased.
As the inventory liquidation cleaned out unwanted stocks new
orders turned up in April and industrial production bottomed

- 4 out early in the summer. Exports continued at a strong pace
throughout this period and rising government spending provided
anticipated stimulus. The downward slide in new home and
automobile sales finally stabilized and modest gains occurred
in both sectors by late spring.
Publication of preliminary GNP figures for the second
quarter indicates that the sharp decline in real output has
ended and that the U. S. economy has entered into the expected
recovery period. The level of real economic activity (adjusted
to remove the effects of price changes) was basically stable—
down only 0.3 percent at a seasonally adjusted annual rate—
according to the preliminary estimates which will be revised
Thursday. This turnaround represents a major improvement
following five consecutive quarterly declines in the real GNP.
While it is gratifying that the turning point was reached
sooner than expected and the pace of recovery is somewhat stronger
than anticipated, this shift in direction does not mean that
everything is now fine. To the contrary, a turning point at the
bottom of a cycle represents the worst combination of economic
conditions experienced during a recession. It is likely that
there will be many more economic disappointments during the
coming months as the moderate recovery accelerates. But it is
certainly encouraging to note the upward tilt of most economic
statistics, particularly: (1) the improvement in employment
and the related drop in the seasonally adjusted unemployment rate
from 9.2 percent in May to 8.4 percent in July; (2) the increase
in retail and wholesale inventories in June in response to several
months of strong sales; (3) the second consecutive monthly gain
in industrial production reported for July; and (4) the strong
upward trend, beginning in March, of the new composite index of
twelve leading statistical indicators. These developments provide a necessary foundation for a sustained recovery into 1976
based on rising personal spending which will eventually stimulate
a resumption of business investment to meet the demand for goods
and services. Although the shape and speed of this recovery is
still uncertain, because of the dominant role of inventory
adjustments and the continuing problems in the housing and
automobile sectors, moderate expansion of economic activity is
now clearly underway.

- 5 -

7/

II. Economic Policies
While there is widespread agreement that a moderate-to-strong
economic recovery has begun, there is justified concern about its
sustainability. The severe recession just experienced clearly
demonstrated that the U.S. economy can be constrained by shortages
of oil and other industrial raw materials. Consumer sentiment is
still fragile and directly dependent upon future employment developments. Business capital investment must be increased if the nearterm expansion is to continue and needed productive capacity and
future jobs are to be created. Because the immediate pattern of
business investment will be largely determined by the strength of
personal consumption, it is crucial at this stage of the recovery
that a surge of new inflation pressures be avoided. Prices are
still increasing at an unsatisfactory seasonally adjusted annual
rate of 6 to 7 percent. An escalation of current prices—or of
inflationary expectations—during the next few months would quickly
disrupt both personal and business spending plans which would, in
turn, curtail both the strength and sustainability of the recovery.
Therefore, current policies must guard against fiscal and monetary
excesses which would disrupt the current expansion and complicate
the problems of creating a more stable economy.
The fiscal dilemma of rapidly increasing government expenditures and lagging revenues continues to distort economic planning.
During the past decade fiscal policies have had to adapt to the
surge of spending for the Vietnam War and various social spending
programs, the major impact of inflation and the sharp erosion of
revenues and increased transfer payments caused by two recessions.
From Fiscal Year 1966 through Fiscal Year 1975, Federal budget outlays
increased from $134.6 billion to $325.1 billion (Table 1). During
that decade the cumulative budget deficit totaled $14 8.7 billion
and the "net increase" in borrowing for various "off-budget" programs
excluded from the Federal budget totaled an additional $149.7 billion.
In attempting to respond to the severe recession, the President
originally submitted a proposed Federal budget for Fiscal Year 1976
which called for outlays of $349.4 billion and a deficit of
$51.9 billion. The mid-session review published May 30 subsequently
increased the expected outlays to $358.9 billion and the deficit
to $59.9 billion. In a separate action by Congress, their first
concurrent Resolution on the budget published May 9 recommended
outlays of $367.0 billion and a deficit of $68.8 billion. Whatever
the final figures turn out to be it is obvious that another large
increase in spending and a record-level budget deficit will occur.

- 6 -

The President also asked for a temporary cut in taxes to help
stimulate the economic recovery expected by mid-year. In March the
Tax Reduction Act of 1975 was finally passed which provided approximately $20 billion of net tax relief. About $17 billion of the tota
was allocated to individuals in the form of a rebate on 1974 taxes
and temporary reductions for 1975 were provided by increasing the
standard deductions, an additional $30 exemption credit, a 5 percent
housing credit and an earned income credit for eligible low-income
families. Business tax relief was provided by increasing the invest
ment tax credit to 10 percent and by raising the surtax exemption fo:
small firms. At the same time, the depletion allowance for oil and
natural gas was phased out and limitations added in the use of foreii
tax
credits associated with foreign oil and gas operations. Dur
the next few months important decisions about possible extension of
parts of the 1975 tax cuts must be made as the pattern of economic
recovery becomes clearer.
The rapid growth of Federal spending during the past decade
has increasingly eroded our fiscal flexibility. Many government
programs involve an "entitlement authority" which makes the actual
outlays open-ended depending upon the eligibility rules and benefit
levels established. There has been a tendency to liberalize both
guidelines and benefits for Federal retirement, social security and
other income maintenance programs are now indexed so that they rise
automatically as inflation occurs. Other outlays are required by
specific legislation and contractual agreements. As a result, the
Federal budget is increasingly committed to the priorities of the
past which makes it difficult to respond to current problems and
future claims. Approximately three-fourths of the Federal budget
is now considered to be "uncontrollable" because of existing
entitlement and contractual obligations. In theory, there is no
such thing as an "uncontrollable" budget commitment since Congress
controls the annual appropriations process. In reality, existing
programs are rarely eliminated or reduced and new claims are
typically "added on" to current outlays. The near-term prospects
are for continued increases in outlays and more Federal budget
deficits. This trend can either be modified by Congressional action
or resources can be transferred from the private sector which would
mean a further increase in the role of government in the economy.
A second important problem concerns the proper role of the
Federal budget. In preparing the budget plan government officials
are actually allocating the human and material resources available
and determining the division of responsibilities between the public
and private sectors. This is clearly a proper function. However,
since the 1930's the Federal budget has been used more and more as
a tool for economic stabilization. Increased outlays and resultant
deficits
to replace
are
private
defended
demand
by claiming
during periods
that Federal
of slack.
spending
The is
size
required
of the

73
- 7 -

Federal budget is then manipulated to meet current economic
stabilization goals in this system of economic management.
Unfortunately the balance turns out to be asymmetrical, because
deficits usually occur during periods of both strong and weak
economic activity. Federal budget deficits have been recorded in
fourteen out of the last fifteen fiscal years—or forty of the last
forty-eight years—and more are expected according to our current
five-year projections.
The overall results of using the budget for stabilization
purposes are not clear because of the complexity of the total
economy and the lagged impact of such policies. But one specific
result does seem obvious: The creation of new spending programs
during periods of economic slack typically creates a permanent
sequence of outlays that continues far beyond the immediate need for
stabilization.
Hopefully, increased realism in determining future fiscal
policies will result from the recent creation of a Congressional
Budget Office which is required to provide overall Federal budget
targets for receipts and outlays for the guidance of the new
Congressional budget committees. In the past, appropriations have
been approved by individual committees so that it was impossible to
develop a comprehensive overview of the total impact of the specific
legislative actions. Under the new procedures, the two Congressional
budget committees will prepare a concurrent Resolution establishing
the basic budget goals and identifying their impact on the entire
economy. The actions of each appropriation committee will then be
combined and compared with the budget committee recommendations
before preparing a second concurrent Resolution for Congress to
approve. A trial run using these procedures over the past few
months for coordinating spending decisions has been encouraging
and a new sense of priorities and discipline may well result from
this new approach.
The combination of increased government spending and tax
reductions has provided extensive stimulus for the economy in
moving back to a recovery pattern. Given the severity of the
recession, particularly the large increase in unemployment, a
sizable budget deficit during the past year was a suitable response.
But such fiscal actions must be carefully controlled, even during
difficult periods, to avoid more permanent erosion of our future
flexibility. Fiscal responsibility is particularly important in
providing a necessary balance with monetary policies. The Federal
Reserve System is too often required to bear a disproportionate

- 8 burden in restraining inflation pressures whenever government
spending and tax policies create excessive stimulus. Extensive
criticism was directed at monetary authorities during the last
few months of 1974 and early 1975 because of the very low rate of
growth of the money supply at an annual rate of only 1 percent
during the six months period ending January 15, 1975. Since late
January the money stock has increased at a seasonally adjusted
annual rate of 9.4 percent. Combining these two periods indicates
that the money supply has increased about 5 percent over the past
year with almost all of the growth occurring during the last few
months. Given the volatile nature of short-term monetary developments, a longer-term perspective of monetary policy indicates that
officials are moving toward the policy commitment of keeping the
money supply growth in the 5 to 7-1/2 percent zone while also
giving careful attention to interest rates and other monetary
measures. This policy goal appears to be a reasonable target when
SUMMARY
combined with the existing III.
stimulus
being provided by fiscal actions.
Although the recovery is apparently well underway, the next
few months are likely to be a turbulent period as fiscal and
monetary policies will probably be under intense pressure to
respond to specific inflation and unemployment developments. In
such a volatile environment, those who advocate more stable economic
policies will be considered naive at best and insensitive at worst.
Nevertheless, there must be a longer-term perspective in determining
policies if we are to ever avoid the "stop-go11 results of the past.
Recent events clearly demonstrate that the U.S. economy will not
function properly with high single or double-digit inflation just
as it cannot survive for very long with such excessive levels cf
unemployment. The constant shifting of policies and resulting
uncertainties about the lagged impact of such actions has too often
frustrated the basic goal of promoting "maximum employment, production
and purchasing power."
The beginning point in adopting more stable fiscal and monetary
policies is a restoration of public confidence in the government's
ability and willingness to establish longer-term economic goals.
As members of the American Accounting Association you have an
important education role in describing how the American economy
works and in preserving the integrity of the comprehensive system
of financial accounts which provides most of the information
required for public and private sector economic decisions. As you
fulfill this important assignment, I hope that you will also communicate to your students, business associates and the general public a
greater awareness of the productivity and creativity of the U.S.
economy when it is allowed to function properly.

- 0TABLE

1

FEDERAL BUDGETS
CHANGES IN THE UNIFIED BUDGET OUTLAYS
BY FISCAL YEAR, 1961-1976
(dollars in billions)

Fiscal Year over
Preceding Year
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975

Federal
Outlays

Dollar
Increase

Percentage
Increase

Surplus
or Deficit

$ 97.8
106.8
111.3
118.6
118.4
134.7
158.3
178.8
184.5
196.6
211.4
231.9
246.5
268.4
325.1

$ 5.6
9.0
4.5
7.3
-0.2
16.3
23.6
20.5
5.7
12.1
14.8
20.5
14.6
21.9
56.7

6.1
9.2
4.2
6.1

-3.4
-7.1
-4.8
-5.9
-1.6
-3.8
-8.7
-25.2
+3.2
-2.8
-23.0
-23.2
-14.3
-3.5
-44.2

—

13.8
17.5
13.0
3.2
6.6
7.5
9.7
6.3
8.8
21.1

Source; Economic Report of the President, February 1975, Table C-64,
p.324, for years 1961 through 1974; 1975 figure published
in joint statement of Secretary William E. Simon and
Director James T. Lynn concerning "Budget Results for Fiscal
Year 1975," July 28, 1975.

oOo

TELEPHONE W04-2041

HINGTON, DC. 20220

?£
FOR RELEASE AT 4:00 P.M.

August 19, 1975

TREASURYfS WEEKLY BILL OFFERING
The Department of the Treasury, by this public notice, invites tenders for
two series of Treasury bills to the aggregate amount of $6,300,000,000 , or
thereabouts, to be issued

August 28, 1975,

as follows:

92-day bills (to maturity date) in the amount of $3,100,000,000, or
thereabouts, representing an additional amount of bills dated May 29, 1975,
and to mature

November 28, 1975 (CUSIP No. 912793 XZ4) , originally issued in

the amount of $2,802,710,000, the additional and original bills to be freely
interchangeable.
182-day bills, for $3,200,000,000, or thereabouts, to be dated August 28, 1975,
and to mature

February 26, 1976 (CUSIP No. 912793 YV2).

The bills will be issued for cash and in exchange for Treasury bills maturing
August 28, 1975,

outstanding in the amount of $5,352,665,000, of which

Government accounts and Federal Reserve Banks, for themselves and as agents of
foreign and international monetary authorities, presently hold $2,578 430 000
These accounts may exchange bills they hold for the bills now being offered at
the average prices of accepted tenders.
The bills will be issued on a discount basis under competitive and noncompetitive bidding, and at maturity their face amount will be payable without
interest.

They will be issued in bearer form in denominations of $10,000,

$15,000, $50,000, $100,000, $500,000 and $1,000,000 (maturity value), and in
book-entry form to designated bidders.
Tenders will be received at Federal Reserve Banks and Branches up to
one-thirty p.m., Eastern Daylight Saving time, Monday, August 25, 1975.
Tenders will not be received at the Department of the Treasury, Washington.
Each tender must be for a minimum of $10,000. Tenders over $10,000 must be in
multiples of $5,000.

In the case of competitive tenders the price offered must

be expressed on the basis of 100, with not more than three decimals, e.g., 99.925.
Fractions may not be used.
Banking institutions and dealers who make primary markets in Government

(OVER)

-2securities and report daily to the Federal Reserve Bank of New York their positions
with respect to Government securities and borrowings thereon may submit tenders
for account of customers provided the names of the customers are set forth in
such tenders. Others will not be permitted to submit tenders except for their
own account.

Tenders will be received without deposit from incorporated banks

and trust companies and from responsible and recognized dealers in investment
securities.

Tenders from others must be accompanied by payment of 2 percent of

the face amount of bills applied for, unless the tenders are accompanied by an
express guaranty of payment by an incorporated bank or trust company.
Public announcement will be made by the Department of the Treasury of the
amount and price range of accepted bids.

Those submitting competitive tenders

will be advised of the acceptance or rejection thereof.

The Secretary of the .

Treasury expressly reserves the right to accept or reject any or all tenders,
in whole or in part, and his action in any such respect shall be final. Subject
to these reservations, noncompetitive tenders for each issue for $500,000 or less
without stated price from any one bidder will be accepted in full at the average
price (in three decimals) of accepted competitive bids for the respective issues.
Settlement for accepted tenders in accordance with the bids must be made or
completed at the Federal Reserve Bank or Branch on August 28, 1975,

in cash or

other immediately available funds or in a like face amount of Treasury bills
maturing August 28, 1975.
ment.

Cash and exchange tenders will receive equal treat-

Cash adjustments will be made for differences between the par value of

maturing bills accepted in exchange and the issue price of the new bills.
Under Sections 454(b) and 1221(5) of the Internal Revenue Code of 1954, the
amount of discount at which bills issued hereunder are sold is considered to
accrue when the bills are sold, redeemed or otherwise disposed of, and the bills
are excluded from consideration as capital assets. Accordingly, the owner of
bills (other than life insurance companies) issued hereunder must include in his
Federal income tax

return, as ordinary gain or loss, the difference between

the price paid for the bills, whether on original issue or on subsequent purchase,
and the amount actually received either upon sale or redemption at maturity
during the taxable year for which the return is made.
Department of the Treasury Circular No. 418 (current revision) and this notice*
prescribe the terms of the Treasury bills and govern the conditions of their
issue.
Branch.

Copies of the circular may be obtained from any Federal Reserve Bank or

Contact:

Helene L. Melzer
964-8706

FOR IMMEDIATE RELEASE August 20, 1975

ARTHUR D. KALLEN NAMED
TREASURY'S BUDGET CHIEF

Assistant Secretary (Administration) Warren F. Brecht
has announced the selection of Arthur D. Kallen as Director
of the Office of Budget and Finance. Mr. Kallen fills the
vacancy left by Edward J. Widmayer, who retired last
December.
In announcing the appointment, Mr. Brecht stated:
"The Director of the Office of Budget and Finance is one
of the most vital and influential positions in the entire
Treasury Department. Mr. Kallen comes highly recommended
by his past and present superiors at the Office of Management and Budget. We in Treasury consider ourselves most
fortunate in attracting an individual of his caliber."
Until his Treasury appointment, Mr. Kallen had been
deputy division chief for the Community and Veterans Affairs
Division of the Office of Management and Budget since 1973.
He was responsible for administering programs relating to
budgeting and management for key Federal agencies, including
the Departments of Transportation and Housing, the Veterans
Administration, Federal Communications Commission, Action,
the District of Columbia and civil rights agencies. He
developed budget policies, legislative proposals and
management improvements for agencies and advised top 0MB
and White House officials on those issues.
In his long association with 0MB and its predecessor,
the Bureau of the Budget, dating back to 1960, Mr. Kallen
also worked on budget and management policies for the
Departments of Justice, Treasury, the Post Office, the
Civil Service Commission and the Executive Office of the
(more)
President.

The new Treasury Budget Director was born in Chicago
April 27, 1927, attended Wilson Junior College and
earned a master's degree in political science at the
University of Chicago in 1951.
Mr. Kallen began his government service as a
management intern in the Navy Department's Bureau of
Ships in 1951 and served as a training director and a
computer systems analyst, moving on to management analyst
at the Bureau of the Budget in 1960 'where he was affiliated
with the Government Organizations Branch.
As Treasury's Budget Officer, he will supervise
budget planning and implementation for the Department
and coordinate budget operations for all the bureaus.
Mr. Kallen is married to the former Vivian Margaris
also of Chicago. They have two children and reside in
Arlington, Virginia.

oOo

Tie Department of thefREASURY
HINGTON, D.C. 20220

TELEPHONE 964-2041

August 20, 1975

FOR IMMEDIATE RELEASE

ft

RESULTS OF TREASURY'S 52-WEEK BILL AUCTION
Tenders for $2,210,000,000 of 52-week Treasury bills to be issued to
the public, to be dated August 26, 1975,
and to mature August 24, 1976,
x;ere opened at the Federal Reserve Banks today. The details are as follows:
RANGE OF ACCEPTED COMPETITIVE BIDS: (Excepting 3 tenders totaling $1,020,000)

Price
High
Low
Average -

92.620
92.570
92.588

Discount Rate

7 .299%
7 348%
7 .331%

Investment Rate
"
(Equivalent Coupon-Issue Yieldj
7.86%
7.91%
7.89%

TOTAL TENDERS FROM THE PUBLIC RECEIVED AND ACCEPTED BY FEDERAL RESERVE DISTRICTS
District
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
TOTAL

Accepted

Received
$ 140,155,000
4,426,835,000
28,120,000
276,080,000
87,850,000
17,245,000
782,740,000
55,105,000
108,665,000
33,105,000
28,980,000
453,220,000

$
46,605,000
1,585,880,000
3,120,000
113,080,000
20,100,000
13,145,000
267,720,000
11,105,000
35,665,000
20,605,000
6,980,000
86,245,000

$6,438,100,000

$2,210,250,000

The $2,210,250,000 of accepted tenders includes 23% of the amount of
bills bid for at the low price and $189,070,000 of noncompetitive tenders
from the public accepted at the average price.
In addition, $679,165,000 of tenders were accepted at the average price
from Government accounts and from Federal Reserve Banks for themselves and as
agents of foreign and international monetary authorities.

a> 1-1

o- *•
E <o

tederai nnancing ranK

</> CM

« O

WASHINGTON, D.C. 20220

/*" CM

?/
FOR IMMEDIATE RELEASE

August 21, 1975

SUMMARY OF LENDING ACTIVITY
August 1 - August 15, 1975
Federal Financing Bank lending activity for the period
August 1 through August 15, 1975, was announced as follows by
Roland H. Cook, Secretary:
On August 1, 1975, the Government of the Republic of
China borrowed $10.1 million from the FFB under the Foreign
Military Sales Act, guaranteed by the Department of Defense.
The interest rate is 8.231, and the loan matures September
30, 1983.
The General Services Administration made the following
drawings against commitments with the Bank:
Date
August 4
August 12

Amount
$2,500
$119,178

Interest Rate
8.605&
8.6951

Maturity
6/15/05
11/15/04

The Department of Health, Education, and Welfare made
two drawings against its commitment with the Bank:
Date
August
August

Amount
3,600,000
1,475,000

Interest Rate
8.6351
8.725%

Maturity
7/1/99
7/1/99

On August 8, 1975, the FFB made its first advance under
a June 1, 1975 agreement with Amtrak, in connection with a
sale and lease back agreement by Amtrak of 25 General Electric
diesel electric locomotives. The first advance, in the amount
of $838,853.96 and at a rate of interest of 7.92%, was to
finance the purchase of two locomotives. The advance will be
repaid in equal installments with a final maturity of 1988.
On August 11, the US Railway Association borrowed $10 million
from the Bank under USRA Note #3 which matures on August 25,
1975.
The rate of interest is 6.827%.
- Over -

The FFB made the following loans to electric utility
companies guaranteed by the Rural Electrification Administration:
Interest
Date
Borrower
Amount
Rate
Maturity
August 13
Colorado-Ute Electric
$ 3,900,000 8.14% 8/13/77
Association, Inc.
August 15
Oglethorpe Electric
$81,608,000 8.68% 12/31/09
Membership Corp.
Interest payments are made quarterly on the above REA
loans.
On August 15, Amtrak, the National Railroad Passenger
Corporation, borrowed $10 million from the Bank against its
$100 million line of credit which matures September 30, 1975.
The interest rate is 6.734%.
Federal Financing Bank loans outstanding on August 15, 1975
total $14 billion.

oOo

r/t/yy

\

LfvUj % 7^Z
<?-yi, a'"/ft""

£>

Departmental theTREASURY
, D.C. 20220

TELEPHONE W04-2041

If

8

73
FOR IMMEDIATE RELEASE

August 21, 1975

RESULTS OF AUCTION OF 4-YEAR 1-MONTH TREASURY NOTES

The Treasury has accepted $2.0 billion of the $4.3 billion of
tenders received from the public for the 4-year 1-month notes,
Series F-1979, auctioned today.
The range of accepted competitive bids was as follows:
Lowest yield 8.45% 1/
Highest yield
Average yield

8.56%
8.54%

The interest rate on the notes will be 8-1/2%. At the 8-1/2% rate,
the above yields result in the following prices:
Low-yield price 100.145 •
High-yield price
Average-yield price

99.773
99.840

The $2.0 billion of accepted tenders includes 90 % of the amount of
notes bid for at the highest yield and $0.5 billion of noncompetitive
tenders accepted at the average yield.
In addition, $50 million of tenders were accepted at the average-yield
price from Government accounts and from Federal Reserve Banks for themselves
and as agents of foreign and international monetary authorities.

II Excepting 13 tenders totaling $617,000

/

FOR RELEASE AT 4:00 P.M.

August 22, 1975

TREASURY'S WEEKLY BILL OFFERING
The Department of the Treasury, by this public notice, invites tenders for
two series of Treasury bills to the aggregate amount of $6,300,000,000 , or
thereabouts, to be issued September 4, 1975, as follows:
91-day bills (to maturity date) in the amount,of $3,100,000,000, or
thereabouts, representing an additional amount of.bills dated June 5, 1975,
and to mature December 4, 1975

(CUSIP No. 912793 YA8), originally issued in

the amount of $2,700,995,000, the additional and original bills to be freely _., ,
interchangeable.

,,...--.,

182-day bills, for $3,200,000,000, or thereabouts, to be dated September 4, £975,
and to mature March 4, 1976

(CUSIP No. 912793. YW0).

.

,

. .

. ,

The bills will be issued for cash and in exchange for Treasury bills maturing
September 4, 1975, outstanding in the amount,of $5,303,550,000, of,which
Government accounts and Federal Reserve Banks, for themselves and as agents of
foreign and international monetary authorities,., presently hold $1,904,575,000.
These accounts may exchange bills they hold for the bills now being offered at
the average prices of accepted tenders.

.

The bills will be issued on a discpunt basis un4er competitive and noncompetitive bidding, and at maturity their face amount will be payable without
interest.

They will be issued in bearer form,in denominations of $10,000,

$15,000, $50,000, $100,000, $500,000 and $1,000,,000 (maturity value), and in
book-entry form to designated.bidders.
Tenders will be received at Federal Reserve.Banks and Branches up to
one-thirty p.m., Eastern Daylight Saving time, Friday, August 29, 1975.
Tenders will not be received at the Department of the Treasury, Washington.
Each tender must be for a minimum of $10,000. Tenders over $10,000 must be in
multiples of $5,000.

In the case of.competitive tenders the price offered must

be expressed on the basis of 100, with not more than three decimals, e.g., 99.925.
Fractions may not be used.
Banking institutions and dealers who make primary markets in Government

(OVER)

securities and report daily to the Federal Reserve Bank of New York their positions 'I
with respect to Government securities and borrowings thereon may submit tenders
for account of customers provided the names of the customers are set forth in
such tenders.
own account.

Others will not be permitted to submit tenders except for their
Tenders will be received without deposit from incorporated banks

and trust companies and from responsible and recognized dealers in investment
securities.

Tenders from others must be accompanied by payment of 2 percent of

the face amount of bills applied for, unless the tenders are accompanied by an
express guaranty of payment by an incorporated bank or trust company.
Public announcement will be made by the Department of the Treasury of the
amount and price range of accepted bids.

Those submitting competitive tenders

will be advised of the acceptance or rejection thereof.

The Secretary of the

Treasury expressly reserves 'the right to accept or reject any or all tenders,
in whole or in part, and his action in any such respect shall be final. Subject
to these reservations, noncompetitive tenders for each issue for $500,000 or less
without stated price from any one bidder will be accepted in full at the average
price (in three decimals) of accepted competitive bids for the respective issues.
Settlement for accepted tenders in accordance with the bids must be made or
completed at the Federal Reserve Bank or Branch on September 4, 1975, in cash or
other immediately available funds or in a like face amount of Treasury bills
maturing September 4, 1975.
ment.

Cash and exchange tenders will receive equal treat-

Cash adjustments will be made for differences between the par value of

maturing bills accepted in exchange and the issue price of the new bills.
Under Sections 454(b) and 1221(5) of the Internal Revenue Code of 1954.the
amount of discount at which bills issued hereunder are sold is considered to
accrue when the bills are sold, redeemed or otherwise disposed of, and the bills
are excluded from consideration as capital assets.

Accordingly, the owner of

bills (other than life insurance companies) issued hereunder must include in his
Federal income tax

return, as ordinary gain or loss, the difference between

the price paid for the bills, whether on original issue or on subsequent purchase,
and the amount actually received either upon sale or redemption at maturity
during the taxable year for which the return is made.
Department of the Treasury Circular No. 418 (current revision) and this noticef
prescribe the terms of the Treasury bills and govern the conditions of their
issue.
Branch.

Copies of the circular may be obtained from any Federal Reserve Bank or

•

MEMORANDUM FOR THE PRESS

August 22, 1975

Edwin H. Yeo, III, Under Secretary for Monetary Affairs
of the Department of the Treasury, will hold a press briefing
at 3:30 p.m., Wednesday, August 27, in Room 4121 Main Treasury.
The briefing will provide background on international monetary
issues and the IMF/IBRD annual meetings scheduled to be held
the first week of September.

oOo

f7
Contact:

FOR IMMEDIATE RELEASE

H.C. Shelley
x8256
August 25, 1975

TREASURY ANNOUNCES PRELIMINARY
COUNTERVAILING DUTY DETERMINATION
Assistant Secretary of the Treasury David R. Macdonald
announced today a preliminary determination in the countervailing duty investigation of glazed ceramic wall tile from
the Philippines. Under the U.S. Countervailing Duty Law
(19 U.S.C. 1303), the Secretary of the Treasury is required
to issue a preliminary determination within six months
after a petition has been received. The petition in this
case was received on February 26, 1975, and a notice to that
effect was published in the Federal Register of April 9, 1975.
The Treasury has until February 26, 1976 in which to issue a
final determination.
Treasury's preliminary affirmative determination indicates
:hat bounties or grants are being paid or bestowed within the
cleaning of the statute. If a final affirmative determination
.s made, the Countervailing Duty Law requires the Secretary
)f the Treasury to assess an additional duty on merchandise
>enefiting from such bounties or grants.
Notice of this action will appear in the Federal Register
f August 26, 1975. During calendar year 1974, imports of
lazed ceramic wall tile from the Philippines were valued at
1.6 million.

'TREASURY
, DC. 20220

TELEPHONE W04-2041

ii
fr

FOR RELEASE ON DELIVERY
STATEMENT OF THE HONORABLE WILLIAM E. SIMON
SECRETARY OF THE TREASURY
BEFORE THE COMMITTEE ON
BANKING, HOUSING, AND URBAN AFFAIRS
UNITED STATES SENATE
REGARDING LOCKHEED AIRCRAFT CORPORATION'S FOREIGN
SALES ACTIVITIES AND THEIR IMPLICATIONS ON THE
EMERGENCY LOAN GUARANTEE PROGRAM
AUGUST 25, 1975, 10:00 A.M.
Mr. Chairman, my testimony concerns the Emergency Loan Guarantee
•program, and in particular the recent disclosures of secret payments
made by Lockheed Aircraft Corporation, the sole borrower under the
program, to officials of foreign governments.
Let there be no misunderstanding: the Emergency Loan Guarantee
Board does not, and will not, condone illegal or unethical activities by American business, here or abroad. The Board condemns such
actions in the strongest terms and is deeply concerned about the
possible improper use of Lockheed's corporate funds and its impact
on the guarantee program. We are disturbed that Lockheed's apparent
long-standing practice of resorting to bribery to sell its products
in foreign markets has escaped detection by the Board, and others
monitoring the company's activities. We are distressed that Lockheed's management has apparently not been forthright with the Board
and with Congress. As a Government official who has spoken out about
the importance of maintaining the free enterprise system, I find
Lockheed's actions deplorable. Lockheed's executives in making
WS-376

- 2 application for a Government benefit —

a guarantee of some

of their borrowings — have not disclosed what may prove
to be material information to the Administration and the
Congress. We recognize that very serious consequences
are involved for Lockheed, for the aerospace industry, and
for the loan guarantee program.
Before providing the Committee with an overview of the
problem, let me summarize briefly the steps the Board is
taking:
The Board has requested by letter that Lockheed:
(1) confirm its oral understanding with the Board that it is
to provide all material information concerning the bribes;
(2) will request its auditor to furnish separately to the
Board additional information regarding the transactions; and
(3) furnish any additional information regarding the payments
that the Board may deem necessary.
The Board has notified Lockheed that the Guarantee
Agreement does not provide for any waiver of the Board's
rights or remedies unless expressly waived in a writing
signed by the Board. In addition, the acceptance of any
certificates, representations, or other documents required
to be furnished by Lockheed, under the Agreement, should not
be deemed to constitute a waiver of any of the Board's
rights.

- 3 As part of the Fiscal Agent's ongoing monitoring
activities, the Board has requested that it prepare a
current assessment of the Government's collateral under the
Credit Agreement.
The Board has asked the Fiscal Agent to carefully
consider the Expenditure Plans, which Lockheed furnished to
the Board in connection with each drawdown of guarantee
funds, to determine whether the Expenditure Plans should be
regarded as false or incomplete in that no information
regarding the bribes was provided.
The Board's staff has questioned past officials
associated with the Guarantee program. None can recall any
information coming to his attention which indicated that
Lockheed was paying bribes to foreign officials.
The Board has requested that Lockheed's Agent Banks
review the information in their possession to advise whether
it indicates that Lockheed has been paying bribes.
The Board's staff is in the process of undertaking
a complete review of its files, and has asked its Fiscal
Agent to do the same, in order to confirm that the Board had
no information about Lockheed's payments of bribes until
June of this year.

- 4 The Board has requested that the General Accounting
Office, which is required to audit any borrowers under the
Emergency Loan Guarantee program and to report its findings
to the Board, search its files to determine whether or not
they contain any information regarding the payment of bribes
by Lockheed.
— The Board's staff met with the GAO staff on August
19 for the purpose of creating a cooperative program whereby the Board may obtain whatever additional information it
deems necessary to assess its position under the Guarantee
Act and the Agreements.

Lockheed's Disclosure
Let me turn now to a discussion of how the Board learned
of the Lockheed bribes. The Board did not become aware that
Lockheed had paid bribes to foreign officials until early
June of this year. This information was first transmitted

orally to the Board's staff by Lockheed's financial officers.
They advised that while proxy materials had been cleared by
the Securities and Exchange Commission staff in connection

with the company's scheduled annual meeting on July 18, 1975,
Lockheed was unable to mail these materials to its shareholders. This was because Lockheed's independent auditor,
Arthur Young and Company, would not certify Lockheed's

- 5 financial statements, unless the company acknowledged that
bribes had been paid to foreign officials and that the
extent of such payments was defined. The Board's staff was
told that the company's financial officers and its independent auditor were reviewing foreign sales practices and
that the Board would be kept advised. The Board was aware
that Lockheed paid sales commissions to foreign consultants.
This practice was not cause for alarm in that it is a usual
way of doing business. Of course, the Board recognizes the
difference between legitimate and appropriate finders' fees
and commissions to sales consultants and bribes paid to
governmental officials, either directly or through commissioned agents. As a result of its initial inquiries, the
Board's staff was left with an impression that there were
isolated instances of bribes and that the amounts involved,
while large, were not significant when viewed in comparison
with those reported to have been made by other corporations.
An allegation which has appeared in the press
on June 6 by the Northrop Corporation that it had
modeled a Swiss subsidiary utilized to facilitate payments to its agents after one established by Lockheed
had triggered Arthur Young and Company's

- 6 inquiry.

Discussions between the Board's staff and Lockheed

officials about these developments included the procedures
Lockheed was following in its review of foreign bribes and
the time period to be covered. The staff began to become
concerned that the dollar amount of payments made by Lockheed
was substantial and that bribery might have been in issue in
more than a few isolated instances. Additionally, Lockheed
advised that it had made political contributions of approximately
$25,000 in one country, but that such contributions were legal
under local law.
On June 16, the Board's staff met with the Arthur Young
and Company partner in charge of the firm's audit of Lockheed
to discuss what Arthur Young was doing in connection with its
review of the Lockheed bribes and the company's foreign sales
activities generally. This meeting reinforced the staff's
concern as to the magnitude of payments made.
On June 17 the Board's staff and a representative of its
Fiscal Agent, the Federal Reserve Bank of New York, met with
Lockheed's Senior Vice President for Finance at Lockheed's headquarters to discuss matters further with him. The Lockheed
official indicated that he and Arthur Young were making a
thorough review of the transactions in issue

- 7 with a view towards reporting their findings to Lockheed's
Board of Directors on June 23.

He also stated that the

Guarantee Board's staff'would be provided with all relevant
information relating to payments by Lockheed to foreign
officials.

The staff recalls that it was at this meeting

that it became aware of a letter, dated April 29, 1975, to
Lockheed from the Securities and Exchange Commission staff
requesting that the company respond to certain general
questions regarding payments it may have made to officials
of foreign governments.
Initial Response by the Board
Once it had learned of the SEC's inquiry, the Board's
staff was kept advised by Lockheed on the status of this
inquiry.

The staff has also received information about an

inquiry into Lockheed's activities by the Senate Subcommittee
on Multinational Corporations.

Further, Lockheed has

furnished the Board with its submissions to the SEC describing
a number of transactions known or suspected by the company to
have involved payments to foreign officials.

Copies of

these submissions were furnished to the Chairman of this
Committee by the Board on August 15, 1975.
The Board's staff visited Lockheed's corporate headquarters again on July 21 and 22 to review the most current
information about the bribery inquiry and to evaluate
Lockheed's operating progress on its L-1011 program.

- 8 Lockheed permitted the staff to review Arthur Young's report
to Lockheed's Board of Directors, which described payments
made to foreign officals and the establishment of a slush
f

fund.

The report substantiated the information contained in

Lockheed's submissions to the SEC. The Emergency Loan
Guarantee Board staff was informed by Lockheed officials that
some bribes involved efforts to market the L-1011 aircraft.

At various times in mid- and late July, the Board's
Executive Director, Edward C. Schmults, talked with each of
the three Members of the Board to alert them of the magnitude
of the problem. He also advised the Board Members that the
staff was in the process of reviewing the Emergency Loan
Guarantee Act and the Agreements between Lockheed and the
ELGB to assess whether any violations or defaults have
occurred by reason of Lockheed's foreign payments and what
legal courses of action were available to the Board.
As this review developed in late July and early August,
it became apparent that additional information was needed in
order to determine whether the Guarantee Act or the
provisions of Lockheed's agreements with the ELGB had
been violated. Additional issues also had to be considered.
These included the purposes underlying the Emergency Loan
Guarantee Act, the Board's responsibilities under the Act,
general U.S. policy with regard to bribery of foreign

- 9 officials by U.S. corporations, and, finally, what actions
the Board ought to pursue in response to these considerations.
These considerations present difficult questions for the Board
to resolve. Among issues to be addressed are:
1. How can the Board distinguish between proper commissions to sales consultants and instances where
consultants use a portion of their fees to bribe
foreign governmental officials?
2. With the purpose of the Guarantee program being the
preservation of Lockheed's viability, should the
Board take action which (a) might put the company
at a competitive disadvantage with respect to both
other U.S. corporations and foreign competitors,
or (b) might cause Lockheed to fail, especially
where rules have yet to be prescribed?
3. Would Board action have broad application affecting
the ability of U.S. corporations to compete in
certain parts of the world, given local business
practices and customs?
In fact, the Board met earlier today in order to
continue its attempts to resolve these difficult questions.
Parenthetically, the Board reviewed a routine rollover of
$30 million of guaranteed notes due today.

- 10 The Board's Monitoring Functions
I think it would be useful at this point to explain the
procedure which the Board has followed to keep apprised of
developments regarding Lockheed. In passing on the Emergency
Loan Guarantee program, Congress had, as one of its primary
purposes, a desire to avoid creating another bureaucracy.
For this reason, among others, Congress directed the General
Accounting Office to audit any borrower under the program and
to report the results of its audits to the Board and to the
Congress.

In this connection, I want to acknowledge the

controversy that took place in 1972 with regard to the GAO's
role. Treasury General Counsel Pierce contended that the GAO
;Of

did not have the statutory authority to review Board internal
:o*
records relating to its own decision making. In any event,
and in response to the position taken by Senator Proxmire and
then Chairman Sparkman of this Committee, the Board has
9:

provided the GAO with every record in its files that has been
•fi-

requested.

I want to point out that there was no question

ever raised that the GAO could not inquire fully into
Lockheed's own affairs. In fact, the Board demanded a provision in the Guarantee Agreement whereby Lockheed is required
to provide the GAO full access to its records.
The Board is supported by a very small staff and by its
Fiscal Agent, the Federal Reserve Bank of New York, which

97
- 11 utilized officers and employees of its Credit and Discount
Department.

The largest the Board's staff has been was three

full-time employees in.the spring of 1973.

The staff's

efforts are supplemented on a when-neede.d basis by personnel
from the Board Members' respective agencies.

At the present

time, the staff is comprised of an Executive Director,
Edward C. Schmults, who also is the Under Secretary of the
Treasury, and a full-time Secretary, Alan Vinick.

A tech-

nical consultant and an attorney, assigned from Treasury,
also work for the Board on a part-time basis.
The Board's staff and the Fiscal Agent have continuously
A,"'

monitored Lockheed's operations, particularly since the
If

company experienced results in early 1972 which fell far short
of expectations.

Monitoring activities have included review

of various Lockheed financial and production data, and
regular meetings with Lockheed officials, with Lockheed's
independent auditor (Arthur Young and Company), with
customer airlines, and with lending banks.
The Board's staff has made frequent trips to Lockheed's
facilities to review various programs in order to better
assess the financial statements provided by the company.
In the last two and a half years, the staff has spent
approximately 158 days reviewing Lockheed's operations at
the company's facilities.

This figure excludes numerous visits

by the Fiscal Agent's representatives to Lockheed's facilities.

- 12 Others have also been actively involved in reviewing
Lockheed's circumstances. The Agent Banks advised us that,
based on a preliminary review of the information in their
files, their monitoring activities found no indication of
any bribes. Further, Arthur Young and Company, Lockheed's
independent auditor, which employs in excess of 200 people,
or 25,000 hours, to perform Lockheed's yearly audit, has
orally advised us that until early June 1975 they too were
unaware of the fact that Lockheed had paid bribes. The
point that I want to make is that if a system of making
payoffs is well contrived, monitoring a multi-billion-dollar
corporation's activities in a diligent fashion will usually
not uncover such practices.
Additionally, the Board has never sought in its
monitoring of Lockheed the task of verifying all of the
company's cash receipts and expenditures, but rather has
relied upon such information being furnished to it in the
form of consolidated financial statements or program
financial statements by the company's financial officers,
its independent public auditors, and the General Accounting
Office. The Board's role in monitoring Lockheed has been
through a credit analysis approach which relies upon internal
and independent auditors, the normal practice employed by
commercial lenders.

/**

- 13 Extension of the Guarantee
As you are aware, the Guarantee Board recently approved
a proposed refinancing plan for Lockheed which extended the
Government's guarantee for two years through December 31,
1977.

I think it should be made clear that when the Board

met on May 17, 1975, to reach this decision, it had no
knowledge of Lockheed's payments to foreign officials.
At its May meeting the Board reviewed Lockheed's draft
financial statements for the year ended December 29, 1974.
The Board's staff was advised by Lockheed that these statements were in the form as to which Arthur Young and Company
was prepared to issue its audit certification subject only
to completion of Lockheed's pending refinancing plan.

In

fact, at the time the formal agreements were executed, on
May 20, the Board was furnished with certified financial
statements signed by Arthur Young and Company, which, except
for minor modifications, were identical to those supplied to
the Board for its May 17 meeting.
The Board's staff and Fiscal Agent also reviewed the
five-year financial forecast completed by Lockheed in April
of this year.

This financial forecast completed by Lockheed

in April of this year.

This financial forecast was discussed

thoroughly at the Board's meeting.

No reference was made

in the forecast about the payment of the bribes by Lockheed
to procure foreign business.

- 14 In addition, Lockheed's Chairman and its Senior Vice
President for Finance appeared before the Board on May 17,
1975, to discuss the risks associated with the company's
business and to review the refinancing plan.

Again, no

mention was made of the company's payments to foreign
officials.

I emphasize that this was at the time that

Lockheed had in its possession a letter from the SEC's staff'
asking for information about bribes paid by the company. It
was also during this time that Senator Church's Subcommittee
on Multinational Corporations was holding hearings on foreign
bribes paid by U.S. corporations.

*

Because of allegations that had appeared in the press
about other corporations, the Board's staff, in the process
of briefing itself and the Board, asked Lockheed whether it
had "laundered" funds through overseas subsidiaries for the
purpose of making political contributions in this country.
Lockheed's response to this question was that no such
activity had occurred.

In retrospect, it would have been

advantageous to inquire as to whether Lockheed had made any
payments to foreign officials.
however, considered at the time.

That question was not,

f°
- 15 Concluding Remarks
From Lockheed's public statements, as well as from
information which we received from Lockheed, it is clear that
bribes had been paid prior to the Guarantee program.

I want

the record to reflect that all of the Members of the Guarantee Board are not only deeply concerned by Lockheed's failure
to have advised us of these practices, but are distressed
that the Government has been involved, even indirectly, in
the L-1011 program if, as intimated by Lockheed, that program
is partially dependent upon bribes for its success.

Whether

laws of the United States have been violated is to be determined following the reviews underway by the various Congressional committees and the agencies investigating these
questions.

A broader policy, however, is at stake here.

The Emergency Loan Guarantee Board has been put in the
position of seeking to protect the Government's interest as
guarantor for creditors of Lockheed.

In so doing, it finds

itself working with a company that alleges that foreign
payments of this nature are a normal and necessary method of
doing business abroad in the highly competitive aerospace
market.

While the Board does not believe it is the approp-

riate agency to develop rules or standards of general
applicability, it is formulating its own assessment of what
has transpired in order to determine an appropriate course
of action under the Guarantee Act. This assessment will

- 16 include a balance of competing interests between the public's
right to know and the alleged potential adverse impact of
detailed disclosure on Lockheed's outstanding orders. Congre
likewise, has a responsibility to determine what actions
it should take in connection with the Government guarantee
of loans to Lockheed.
When the Board has completed its review it will then
be in a position to recommend whether a change in the
Guarantee legislation is desirable.
Mr. Chairman, let me repeat what the Board is doing.
In accordance with our responsibilities under the Act, we
have sought all pertinent information from Lockheed, and
others, so that we can address the underlying issues
thoroughly and intelligently. We are hesitant to prejudice
our position by presupposing what our response will be until
we are sure of the facts, are informed of the conclusions of
the SEC investigation, and have evaluated our own responsibilities under the Act. At that time, the Board will take
whatever actions it concludes are warranted in response to
Lockheed's misconduct.
Mr. Chariman, a crucial challenge facing us today is
the preservation of the free enterprise system. Practices
such as bribes made to secure foreign business can only
increase the distrust and suspicion that is straining our
national institutions. To argue that bribes to foreign

- 17 officials are necessary for effective competition is contrary to every principle under the free market system.
The Emergency Loan Guarantee Board wants to go on record
as condemning these practices.

/if
FOR IMMEDIATE RELEASE

August 25, 1975
CONTACT: Alan Vinick
964-5512

EMERGENCY LOAN GUARANTEE BOARD
MEETS TO CONSIDER IMPLICATIONS OF
LOCKHEED'S IMPROPER PAYMENTS TO FOREIGN OFFICIALS
AND POLITICAL ORGANIZATIONS

The Emergency Loan Guarantee Board met today for the
purpose of considering what actions it should take in
response to the recent disclosures by Lockheed that the
company had made certain improper payments to foreign
governmental officials and political organizations.
Lockheed's Chairman, Daniel J. Haughton, and other
company officials, met with the Guarantee Board and advised
that a policy which would prohibit the company from making
improper payments to foreign officials or political
organizations, directly or indirectly, will be considered
at a meeting of Lockheed's Board of Directors in early
September. For the present, Mr. Haughton stated that
Lockheed management has suspended all payments to consultants.
Meeting alone later, the Guarantee Board decided that
unless directed by Congress to the contrary it will require
that Lockheed not make any future improper payments, directly
or indirectly, to foreign governmental officials or political
organizations, including any such payments presently
committed. Specific measures directed to this essential
objective are in the process of being worked out.

5s

ie Deporfmem o/f/ief/JfylSt/fJK
;HINGT0N, D.C. 20220

TELEPHONE 964-2041

M7
August 25, 1975

FOR IMMEDIATE RELEASE
RESULTS OF TPvEASURYTS WEEKLY BILL AUCTIONS

Tenders for $3.1 billion of 13-week Treasury bills and for $3.2 billion
if 26-week Treasury bills, both series to be issued on August 28, 1975
rere opened at the Federal Reserve Banks today. The details are as follows:
13-week bills
ANGE OF ACCEPTED
OMPETITIVE BIDS: maturing November 28, 1975
Price
High
Low
Average

Discount
Rate

98.335 a/ 6.515%
98.307
6.625%
98.315
6.593%

26-week bills
maturing February 26, 1976
Investment
Rate 1/

Investment
Rate 1/

Price

Discount
Rate

6.74%
6.85%
6.82%

96.436
96.413
96.418

7.050%
7.43%
7.095%
7.48%
7.085%
7.47%

/ Excepting 2 tenders totaling $5,220,000
Tenders at the low price for the 13-week bills were allotted 73%
Tenders at the low price for the 26-week bills were allotted 93%,
TAL TENDERS RECEIVED AND ACCEPTED BY FEDERAL RESERVE DISTRICTS:
District

Received

44,885,000
Boston
*$
New York
3 ,508,095,000
60,335,000
Philadelphia
72,210,000
Cleveland
62,425,000
Richmond
51,650,000
\tlanta
293,430,000
Chicago
55,700,000
>t. Louis
22,695,000
linneapolis
47,595,000
Kansas City
40,495,000
Jallas
an Francisco— 185,980,000
TOTALS^ 4 ' 4 4 5 ' 4 9 5 ' 0 0 0

Accepted
$
42,885,000
2,425,215,000
58,335,000
67,210,000
51,575,000
47,335,000
164,380,000
44,200,000
9,695,000
45,595,000
35,495,000
108,980,000

Received

Accepted

$
50,775,000
4,979,035,000
41,320,000
272,230,000
72,690,000
51,000,000
367,265,000
49,480,000
27,835,000
39,300,000
43,195,000
250,415,000

$
18,775,000
2,802,605,000
16,320,000
143,015,000
30,190,000
30,170,000
45,510,000
22,430,000
4,835,000
31,335,000
18,195,000
37,105,000

$3,100,900,000 b/ $6,244,540,000

$3,200,485,000 c/

Includes $495,975,000 noncompetitive tenders from the public.
Includes $307,795,000 noncompetitive tenders from the public.
Equivalent coupon-issue yield.

UKK3.0 STATES DBPASS^CTl- OF TES

TKE/^SORT

WASHINGTON, D*C.

PRESS CONFERENCE

Roora 4X21, Main Treasury Building
15th and £ennsylvaaia Ave,, N.W.
Washington, D,C,
Wednesday, August 27, 1975
Convened at 3s45 p.au
PARTICIPANTSs
Lisle Widaan, Deputy Assistant Secretary for International
Monetary and Investment Affairs
John Bttehnell, Deputy Assistant Secretary for fev^icoing
Nations **»« Finance
Sam Cross*, United States Executive Director, International
Monetary Tm\&
Charles A. Cooper, Assistant Secretary fcr International
Affairs
* Bdwin B« Yeo, Under Secretary for r-so^etavy Affairs

3 l&
views*

We are particularly interested in discussing with our

colleagues the nature of the recovery in the United States
econoa&y and our views on how that recovery can best be
facilitated for the good of usf Americans, and for the good
of the world corsmunity*
X aia open to your questions*
QOESTIO&s

Mr. 1Teo, there has been some suggestion

that the package that was discussed in Paris, the split issue,
m

the government willing to split the package*
MR* TEOs We are reviewing the possibility of soma

unbundling for the purposes of d£scussionr wiMHiliBp* As you
know from our country's standpoint a final conclusion on
parts of all three issues involves legislation.
So as a legislative matter it is quite unlikely
that we can unbundle* But for purposes of discussion we are
reviewing the possibility of unbundling* We are interested
in a flexible framework for talks* We are interested in
anything that tends to add rigidity to our
conversationsFor that reason we are reviewing the possibility
of unbundling*
QUESTIONS

Does that foreclose the possibility of

an agreement on one or two of the issites? in the negotiations?
MR. YEOs

That does not foreclose it* but what it

says is we are reviewing the possibility of unbundling*

4

/T*
j

QUESTION: Is it possible we could get an agreement j
on gold questions or the various details here this coming
week?
MR. YEO: It is possible we can reach near agree-

ment on gold or on any of the other three economic discussi

jpHntee*, exchange rate* That is certainly possible. But th
question remains whether or not it is possible to put

together some agreements until we have a package as a whole
As I said we are reviewing that aspect of it with

an eye to what we can do to open up conversations and provi
a flexible framework for them*
QUESTION: Will this review be completed before the
meetings start?
MR* YEO: Yes.
QUESTIONS You will go to the Saturday interim
meeting knowing whether or not you will unbundle?
MR. YBOs That is correct, and if so, where,
QUESTION: What does that mean?
MR* YEO: There are any number of ways these issues

can be unbundled. We have four issues* You have better math
mind than I have, but what is it ~- square root?
QUESTION: What about the fifth issue of oil, and

the sixth issue of developing countries? You mentioned four
Issues•
MR* YBO: They are certainly important issues* I was

5

{

addressing *in terms of >~he four %te explicit issues that j
Concern !

•&HSKA£h the interim committee-

But in terms of the total

j

j

meetings there are the probieaas of developing countries.
Problems that are underlined by the experience we have had
in the last 18 months in petroleum, and underlined by a
second phenomenon which.is the largest^ in terms of amplitude, dnd
broadest in terms of pervasiveness, inventory cycles since
1&21*
It is these circumstances that make the challenges
and problems of developing countries particularly irrelevant
to our meetings that are coming up* I think you will see in
our conversations and ideas that we have had this aspect
much in mind*
QUESTION: It used to be the interim committee /
•T"OT IV)

(inaudible).

There is a possibility I gather of the )mmm of

taking risks and responsibility for the system of compensating
balances for the developing countries* Is this not going to
be discussed with the new U.S. proposals?
MR* YBOt I think it will be included in the
general formal and informal discussions* The principal things
within the interim committee we hope to concentrate on: (1)
economic discussions* It is clear there is a felt need for
economic consultations and we have a readymade vehicle, a
group, a continuing group in which these consultations can take
place.

6 irr j
QUESTION: What do you expect those economic
consultations to lead to? It is a little vague the way you
have put it*
MR. YEO: I think a principal achievement, certainly
an objective would be more comprehensive understanding on all
of our parts, ours included, of the factors that are affecting
the world economy and its major constituent parts*
This is not just a matter of talking economics. We
are in an unusual period, an unprecedented period*

And a

shared perception of our problems, of our challenges and
problems ^is a prerequisite for effective individual action.
For example, why can we observe in many developed
economies a shift in liquidity preference on the part of
individuals? Why are we experiencing such high savings rates?
This is no small question*

It is a difference

between recovery and no recovery in several key economies.
Is it a structural change or is it a temporary change? That
in turn is no small question. Because if it is a temporary
change when will the shift in liquidity preference go the
other way. Or in other words, when will we have a consumer
boom*

Because that is what it entails*
Will it be. under Murphy's law, at the wors£ possible

time? This is something we need a shared understanding about*
vmwtm "Ihe potential power of shifts in W H t t s rates far
exceeds ism impact on aggregate demand £

7 /r2 1
^-— Mr changes in fiscal policies which are discussed J
}

day by clay by day continuously*

It is a very powerful factor.

1
QUESTION:

Is this proposal meant to be an alter-

4S

;

fa

I

native suggestion by the President «fc.the summit conference on J

*

I

economic issues?
MR* YEO: No* It is not meant to be an alternative \

i
i

to anything. It comes from the very specific types of con!
cerns that I mentioned In a sense that at this time these are j
approprxate — urgent — items ^§ discussion within the
context of the appropriate group.
QUESTION: Would you go on and finish the list you j
started awhile ago one should concentrate on, first economic j
consultations? what is second, third and fourth? I
MR* YEO: Economic consultations, this was within j
the interim committee. Economic consultations, th& exchange I
rate question, the gold question, the quota question, all are I
i

np for discussion within the broader context of this community j
i

of meetings.

j
r

(

The problems of LDCs X think you will find will

j

receive a very high priority.
QUESTION: Do you expect compromise will be struck j
on the exchange rate question between d'Hstaing and the U.S.? ;
MR* YEO: We are negotiating and that process I
implies some ultimate accommodation* I think there will be j
an ultimate accommodation.

8

M

|
}

QUESTION:

Can you be specific at all?

J

MR. YEO: No, ma'am.
QUESTION: Will the G-5 meet, and if so, when and
where?
MR. YEOs One of the characteristics of the meetings
we are going into, and one of the values is that there are a
number of bilateral meetings, multilateral meetings, and
opportunity for discussion, and I assume that which has
characterised past meetings will characterize this one*
QUESTION: Where will the meetings be held? Will it
be a dinner? Will it be a Camp David thing, or what?
MR* YEO: There will be a number of meetings on an
informal and ad hoc basis. As you well know they will be
held in corridors, at dinner parties, and elsewhere.
QUESTION: Will you say something about the spirit
with which you will approach this exchange rate system? Is it
along the way you recently outlined, or the way the Secretary
said about floating -- Is there any change or any possibility
for an approach to the French relaxation of their stand on
that?
MR. YEO: It is our feeling that what we ought to
have is a voluntary system. That those who wish to float can
float, and those who wish to peg their currencies in terms of
a fixed relationship can operate with a fixed exchange rate
system. I

We also mmmmmm

believe that onex ought not to appear j

to be second-class or transitory. It is our interpretation, j
and I think it is becoming shared by many people? that the j
exchange rate system that we have, the voluntary system, and
l

particularly the floating aspect of it,has served the world
well. |
It is our view that stability is a result,— \
particularly financial stability^!© a result of the economic \

j
equilibrium* That you cannot impose financial stability In
an economy character!zed by economic disequilibrium. \

'

It is our view that the world is wary of broken
promises* of promises of superimposed stability that lasts for j
a month, a year and then you blink your eyes and they are gone*]
\

You have devaluations. We don't think it is politically

j
i

desirable to establish a system that sets the stage for

j

additional broken promises • *M» we can make a contribution >
in the direction of economic — of political stability by j
operating within the context of a system that is elastic
enough to function in the kinds of conditions that have
characterised the last three years*
Moreover we think, those of us, and particularly I
think the President, the Secretary, those of us who set a high ;
priority on price stabilization,which I think is really a j
euphemism for economic equilibrium^feel that concentration on ;
V

a mechanical, although important, aspect distracts attention

}

10

)??

|

from the mainfevent which is the development of domestic
policies that will lay down the concrete, provide the basis
for price stabilization and economic equilibrium. And in turn
provide the basis for sustainable economic recovery.
QUESTION: I am curious as to why you feel these
meetings of the interim committee would be inappropriate for
discussion of matters such as the level of savings rates in
various countries given the complexity of the other issues
before the committee and the regular OECD meetings to normally
•

economic questions of that sort.
Could you explain, perhaps, in more detail why you
think this is an appropriate topic? I am not questioning
its importance*
MR* YEO: Given its importance^"we have established
its importanceXand given the importance of the participants
in the Interim meeting why is this not a good forum, a good
context within which to discuss these questions? It seems to
me it is very appropriate and will not preclude the necessary
energy and focus on other issues.
QUESTION: I am curious as to what the interim
committee might conclude might be relevant to questions of
savings rate. What might come out of that committee given
its various mandates?
Obviously we are all concerned about the state of
the world economy, and the state of that economy is relevant

11 /id

I

j
to these other issues. But are you suggesting what this

j

interim committee has to do in order to solve questions of the I
i

J

exchange rates, role of gold, and so on?

They must first find.
!

a way to get the economic —•

i
•

j

MR. YEO:

I am not suggesting one as a prerequisite !

to the oth&Tt but I am also not suggesting they are not in r

1
some &ense interrelated. Economic discussions are certainly !
not a prerequisite in terms of other areas. The re&soas for 1
discussions of this mature at the interim committee level are \
cTo
W ^
!
(a) it is very important, (b) it isAappropriate fin terms of
j
its composition* an appropriate group. •
If you attach the priority we do to these dis~ j
i

cussions? we think it is a meaningful addition to the agenda* [
In terms of what will be accomplished, will there be an agree- \
ment on savings rates? No, there will not be. \
Will there be a better understanding as a result? i

j
I am sure*

Will there be a shared perception?

It is probable,;
j
That in my mind represents the opportunity at this time for
]
a significant advance. 1
i
QUESTIONt A two-part question. In addition to
savings rates what might be some other issues to come up?
And secondly, have you sounded out other members of the
committee? Do they agree it is an appropriate forum for \
discussion? J
MR* YEO: I think there is general agreement it is I

I

12

/(>l

an appropriate issue.
QUESTION: How is it appropriate? Is it because of
participation of LDC« in it?
MR* YEOs It is appropx*iate because of its
significance* It is appropriate because of its importance
at this time*
QUESTION: There was another part to this question*
What might be other subjects that would come up in the
economic discussion?
MR. YEO: I gave savings rates, not as a subject
but as an example in an attempt to respond to the n^ed to be
specific. The subject is going to be the various state&of
various principal economies in the world* This is what we
are all concerned and interested in. What is going on in the
United States? What is going on in Germany, France, and a
number of other significant to all of those economices.
And that this is an unusual time is symbolized only
by the savings rate mechanism* This is not a conference to
discuss savings rates.
QUESTION: In discussing the state of the economy
and various economies what do you hope to be able —• do you
hope to be able to prove something relative to these Issues
such as exchange rates? Do you have to be able to solve
some of these problems such as exchange rates?
MR. YEO: Not in the direct sense. As I said this

13 /Ms

is not a prerequisite. It contributes to better understanding
vvhich in term facilitates negotiations in other areas.
Are *?e looking at issues through the same lens?
Through the saise outlook in terras of economic prospects,
economic problems? A shared perception of where the world's
economy is now facilitates understanding and therefore
agreement.
QUESTION: Mr. Yeo, you spend a good deal of your
time talking about the state of the various economies of the
world* Will you not reduce th.^ chances you will have time
to solve some of the Issues on the specific issues?
MR. YBOs No, I do not think so. As a matter of
fact I think it could go quite the other way. Economic
Or}

unanimity is not prerequisite for agreem»nt«*Ma# the other
principal item)'? of business on the agenda* 1
On the other hand it can facilitate agreement. For
example, do we perceive as a group continued stagnation? 1
don't personally. This has an i&paat on soiae of the other
areas under consideration.
There is a need for a ssore cosiplete understanding,
a dialogue of shared perception, and we think it is quite
important.
QUESTIONS I am thinking in the practical terms of
the time available for the ministers to get together and
discuss things, and X can easily envision you spending all of i

« /&3
the tiiae discussing these very broad, diffuse complex
questions of the world economy and never coming to grips with
such things as exchange rates and gold.
MR* YEO:
QUESTION:

The intention is the opposite*
Suppose you coiss to agreement that there

is a general level of stagnation.

Could you envision the

interim committee making any recommendations to deal with
them?
MR. YEO:

I am not sure the interim committee would

make any recosmaendations that would take the form of an
announcement.

But I am reasonably sure if that were the

perception that it would have an impact on various country
policies.
I will take one more question*
QUESTION:

You always have discussions at these

meetings on the general state of world economies.

The

communiques are always full of Information about world
economies*

I fail to see what is new about your proposal

except right at the beginning of this press conference you
mentioned there might not be announcements.

And the sug-

gestion one comes away with you will come out with a long
communique again about the state of the world economy and
no detailed statement on anything.
Is this a false conception?
MR* YEO?

I think so.

That is not the intention

is /0</
at all.

The intention is not to load the discussions with

\*ery general economic review type conversation.
The intention is to move forward, our hope is to
move forward on the four Issues.

And in particular the three

issues that have been before the committee for sozm months*
By the same token it seems to me we could all agree
it is appropriate to Include in our discussions, perhaps, in
greater depth than in the past and with more structure than
in the past, a dialogue, conversations on principal developments in key world economies*
It seems to me that we would almost be remiss if
that were not on the agenda.

And I don't mean to suggest

that we are taking international the idea of crowding out*
Thank you very much.
(Conference concluded at 4:21 p.m.)

Contact: Joyce Barbee
964-5844

FOR IMMEDIATE RELEASE

August 27, 1975

TREASURY RELEASES FINAL BUDGET RESULTS FOR FISCAL YEAR 1975

Attached is the Final Statement of Receipts and Outlays of the
United States Government for Fiscal Year 1975. The final budget deficit
is $43,604 million as compared to the preliminary published deficit of

$44,212 million, a decrease of $608 million. The change is attributable

to a net increase in receipts of $76 million and a net decrease in outlays

of $532 million. Each year there are differences between the preliminary

and final; however, this year's difference is higher than normal due to

an adjustment of $427 million relating to food stamp program outlays. The

remaining changes result from giving effect to final transactions (including

many overseas transactions) of Government disbursing, collecting and adminis-

trative agencies, which could not be reported in the preliminary statement.

tfS-377

^O^'O^

Final1 Monthly Treasury Statement of
Receipts and Outlays of the United States Government
for period from July 1,1974 through June 30,1975

/fo (?

TABLE I--TOTALS OF BUDGET RESULTS AND FINANCING (IN MILLIONS)
Budget Receipts and Outlays

Fiscal Year
Receipts

Actual 1975 (twelve months)
Z!omparative data:
Actual 1974 (full
year)
Estimated 1975 2
2
Estimated 1976

Outlays

M e a n s of Financing

Budget
Surplus (+)
or
Deficit (-)

By
Borrowing
from the
Public

By Reduction
of Cash
and Monetary
Assets
Increase (-)

J*
Other
Means

Total
Budget
Financing

$280,997

$324,601

-$43,604

$50,853

-$320

-$6,929

$43,604

264,932
280,963
299,000

268,392
323,612
358,900

-3,460
-42,649
-59,900

3,009
50,800
73,900

2,519
2,700

-2,068
-10,851
-14,000

3,460
42,649
59,900

TABLE II--SUMMARY OF BUDGET RECEIPTS AND OUTLAYS (In thousands)
Classification

Actual
This Fiscal
Year to Date

Budget
Estimates
Full Fiscal Y e a r 2

RECEIPTS
ndividual income taxes
lorporation income taxes
ocial insurance taxes and contributions:
Employment taxes and contributions
Unemployment insurance
Contributions for other insurance and retirement
ixcise taxes
Istate and gift taxes
ustoms
Hscellaneous
Total
OUTLAYS
egislative Branch
he Judiciary
xecutive Office of the President
unds Appropriated to the President:
International security assistance
International development assistance
Other
spartment of Agriculture
apartment of C o m m e r c e
apartment of Defense - Military
apartment of Defense - Civil
apartment of Health, Education, and Welfare
apartment of Housing and Urban Development
ipartment of the Interior
spartment of Justice
spartment of Labor
spartment of State
ipartment of Transportation
spartment of the Treasury:
Interest on the public debt
General Revenue Sharing
Other.
«rgy Research and Development Administration
ivironmental Protection Agency
neral Services Administration
tional Aeronautics and Space Administration
terans Administration
tependent agencies
Lowances, undistributed
distributed offsetting receipts:
Federal employer contributions to retirement funds
•merest on certain Government accounts
,
footnotes
on page 3.
tents
and royalties
on the Outer Continental Shelf lands .,
Total
rce: Bureau of Government Financial Operations. Department of the Treasury
Plus (+) or deficit (-)

$122,385,980
40,621,179
75,204,416
6,770,706
4,465,868
16,550,686
4,611,125
3,675,532
6,711,349
280,996,840

$121,648,000
41,000,000
75,147,000
6,887,000
4,474,000
16,536,000
4,440,000
3,770,000
7,061,000
280,963,000

726,049
283,754
92,826
994,262
1,556,625
1,020,996
9,724,876
1,582,926
85,420,124
2,051,164
112,410,756
7,488,207
2,161,594
2,066,906
17,648,568
844,292
9,246,562
32,665,008
6,137,917
2,374,224
3,198,199
2,530,463
-624,054
3,266,708
16,575,008
-3,980,206
17,255,173
-7,690,002
-2,427,965

742,896
308,127
108,674
1,266,600
1,624,149
1,022,947
10,333,818
1,630,997
85,885,000
2,167,331
112,188,536
5,707,227
2,190,627
2,061,192
17,444,299
965,363
9,328,514
32,800,000
6,129,000
2,290,629
3,128,267
2,936,736
-766,166
3,267,200
16,726,121
-3,998,105
16,181,881
-7,759,517
-2,300,000

324,600,960

323,612,343

-43,604,120

-42,649,343

TABLE HI-BUDGET RECEIPTS AND OUTLAYS (In thousands)
Current Fiscal Year to Date

This Month
Classification of
Receipts

Gross
Receipts

Refunds
(Deduct)

Net
Receipts

Gross
Receipts

Refunds
(Deduct)

Net
Receipts

to

i

'$10,026,793
314
'4,540,362

Total--Individual income taxes
Corporation income taxes
Social insurance taxes and contributions:
E m p l o y m e n t taxes and contributions:
Federal old-age and survivors ins. trust fund:
Federal Insurance Contributions Act taxes
Self-Employment Contributions Act taxes
Total--FOASI trust fund
Federal disability insurance trust fund:
Federal Insurance Contributions Act taxes
Self-Employment Contributions Act taxes...
Deposits by States
Total--FDI trust fund

,.

Federal hospital insurance trust fund:
Federal Insurance Contributions Act taxes. . ..
Self-Employment Contributions Act taxes.
Receipts from railroad retirement account
P r e m i u m s collected for uninsured individuals

Net
Receipts

Refunds
(Deduct)

Gross
Receipts

1
Individual income taxes:
Withheld
Presidential Election Campaign Fund ........!'.'
Other
!.'!.*.'!

9

Comparable Period Prior Fiscal Y e a r

•:: -

$112,064,207
27,592
30,811,851

$122,071,480
31,657
34,296,301

^ m -

*

$122,385,980

142,903,650

$23,952,018

$118,951,631

5,125,481

40,621,179

41,744,444

3,124,789

38,619,654

46,904,675
2,674,426
5,897,892

269,650

46,635,025
2,674,426
5,897,892

40,835,583
2,345,208
4,989,458

392,557

40,443,026
2,345,208
4,989,458

3,958,376

55,476,993

269,650

55,207,343

48,170,250

392,557

47,777,693

'527,343
'37,320
152,334

527,343
37,320
152,334

6,158,949
350,742
775,875

35,350

6,123,599
350,742
775,875

5,259,583
305,414
632,646

50,217

5,209,366
305,414
632,646

716,997

716,997

7,285,567

35,350

7,250,217

6,197,642

50,217

6,147,425

'826,582
'46,025

826,582
46,025

55,000

238,401
673

9,519,540
391,251
126,749
1,214,297
5,685

9,090,690
357,588
96,163
1,099,424
4,281

92,432

238,401
673

8,998,258
357 588
96 163
1,099,424
4.281

1,111,680

1,111,680

9,574,540
391,251
126,749
1,214,297
5,685
11,312,522

55,000

11,257,522

10,648,146

92,432

10,555,714

1,489,333

1,411,830

497

1,411,333

156,399,438 $34,013,458

14,567,469

$1,444,362

$13,123,107

10,241,243

663,693

9,577,550

45,746,660

'4,016,054
3
289,826
4
-347,504

4,016,054
289,826
-347,504

3,958,376

Railroad retirement accounts:
T o t a l — E m p l o y m e n t taxes and contributions
Unemployment insurance:
U n e m p l o y m e n t trust fund:
State taxes deposited in Treasury
Federal Unemployment T a x Act taxes
Railroad Unemployment Ins. Act contributions ....

Contributions for other insurance and retirement:
Federal supplementary medical ins. trust fund:
P r e m i u m s collected for the aged
Total--FSMI trust fund
Federal employees retirement contributions:
Foreign service retirement and disability fund....
T o t a l — F e d e r a l e m p l o y e e s retirement
contributions - - - - . . . - - . - . . . . . . . . _ _ . . . .

1
1

139,450

28

139,421

1,489,548

214

5,926,502

28

5,926,474

75,564,630

360,214

75,204,416

66,427,868

535,703

65,892,164

62,125
10,761
23,466

4,229

62,125
6,532
23,466

5,299,041
1,388,082
116,719

33,137

5,299,041
1,354,945
116,719

5,263,812
1,480,574
118,362

26,202

5,263,812
1,454,371
118,362

96,352

4,229

92,123

6,803,843

33,137

6,770,706

6,862,748

26,202

6,836,546

155,695
12,038

155,695
12,038

1,750,060
150,827

1,750,060
150,827

1,578,919
125,452

1,578,919
125,452

167,733

167,733

1,900,887

1,900,887

1,704,371

1,704,371

233,827
1,210
3,634

233,827
1,210
3,634

2,495,159
12,952
4,437

2,495,159
12,952
4,437

2,290,206
9,579
2,261

2,290,206
9,579
2,261

238,671

238,671

2,512,548

2,512,548 |

2,302,047/

j

2,302,047

Gross
Receipts

Refunds
(Deduct)

Comparable Period Prior Fiscal Year

Current Fiscal Year to Date

This Month
Classification of
RECEIPTS—Continued

Net
Receipts

Gross
Receipts

Refunds
(Deduct)

Net
Receipts

Gross
Receipts

Refunds
(Deduct)

Net
Receipts

Social insurance taxes and contributions—Continued
Contributions for other insurance and retirement—
Continued
Other retirement contributions:
Civil service retirement and disability fund
Total—Contributions for other insurance and
retirement

$6,113

$6,113

$52,434

$52,434

$44,925

v44) «N9V

412,517

412,517

4,465,868

4,465,868

4,051,343

4,051,343

Total—Social insurance taxes and contributions....

6,435,371

$4,257

6,431,114

86,834,341

$393,351

86,440,989

77,341,958

$561,906

76,780,053

894,686
85,610
519,200

23,526
75
12,000

871,160
85,535
507,200

9,550,060
963,729
6,334,253

149,907
1,369
146,080

9,400,153
962,360
6,188,173

9,883,874
842,273
6,383,707

140,624
2,163
123,399

9,743,249
840,110
6,260,309

1,499,496

35,601

1,463,895

16,848,041

297,356

16,550,686

17,109,853

266,185

16,843,668

Estate and gift taxes

425,177

13,412

411,765

4,688,079

76,954

4,611,125

5,100,675

66,034

5,034,641

Customs duties.

311,468

10,073

301,395

3,781,601

106,069

3,675,532

3,444,059

109,920

3,334,139

483,769

5,776,550

5,776,550

4,845,423

Excise taxes:
Miscellaneous excise taxes
Airport and airway trust fund
Highway trust fund
Total—Excise taxes

Miscellaneous receipts:
Deposits of earnings by Federal Reserve Banks.
Fees for licenses to import petroleum and petroleum
products
All other
Total—Miscellaneous receipts
Total—Budget receipts.

483,769

4,845,423

122,111
-97,986

57

122,111
-98,043

442,615
492,471

287

442,615
492,184

523,469

278

523,191

507,894

57

507,837

6,711,636

287

6,711,349

5,368,892

278

5,368,614

33,988,119

2,171,456

31,816,664

321,009,795

40,012,956

280,996,840

293,013,531

28,081,131

264,932,401

FOOTNOTES
Note: Throughout this statement, details may not add to totals because of rounding.
^his statement contains the final figures showing budget results for fiscal 8Amounts for "Rents and Royalties on the Outer Continental Shelf Lands"
year ending June 30, 1975. These figures reflect a net change of $608 million
previously shown under proprietary receipts for the Interior Department are
(decrease) in the deficit published in the preliminary statement. The differnow being shown as undistributed offsetting receipts to conform with the 1976
ences between results as shown in this statement and the preliminary figures
Budget presentation.
9
released in July result from giving effect to final transactions (including many
Pursuant to Treasury Department Order No. 229-1, as of March 17, 1974,
overseas transactions) of Government disbursing, collecting, andadministraall remaining current activity for the Office of the Treasurer was transferred
tive agencies, which could not be reported in the preliminary statement.
to the Bureau of Government Financial Operations.
10
The principal changes in receipts are increases in individual income
Represents $50 special payments m a d e pursuant to Public Law 94-12.
xl
taxes, $64 million, estate and gift taxes increased $22 million and miscelPursuant to Public Law 93-438, the activity for the Atomic Energy C o m laneous taxes decreased $36 million. Total receipts increased $76 million.
mission other than nuclear regulatory and reactor safety research was transThis year's difference in outlays in higher than normal due to an adjustferred to the Energy Research and Development Administration.
12
ment of $427 million relating to food stamp program outlays. Total outlays
Excludes $825 million of notes issued to the International Monetary Fund
decreased $532 million.
to conform with the Budget presentation.
2
13
Based on revised estimates of the 1975 Budget released M a y 30, 1975,
The June 30, 1974, balance shown under the former General Account of
in the Mid-Session review of the 1976 Budget.
the U.S. Treasury is now presented in the following lines:
3
In accordance with the provisions of the Social Security Act, as amended
"Individual income taxes withheld" have been increased and "Federal Insury.S. Treasury Operating Cash.
$9,159,226
ance Contributions Act taxes "have been decreased in the amount of $82,021,346
Other cash monetary assets
1,034,230
to correct estimates for quarter ended September 30, 1974, and prior. "IndiMiscellaneous asset accounts
158,534
vidual income taxes other" have been decreased and "Self Employment Con'
tributions Act taxes" have been increased in the amount of $158,170,243 to
As of December 9, 1974, gold certificates have been issued to the
correct estimates for the calendar year 1973 and prior.
Federal Reserve against all of the gold owned by the United States, and any
^Includes $390,735,220 distribution to Federal Disability and Hospital
disposition of gold hereafter will.be the result of announced sales. The inforInsurance Trust Funds.
mation will be published monthly in the Treasury Bulletin. Gold holdings,
'Represents reclassification of amount previously reported in the Budget
gold certificates and other liabilities, and gold balance are included in miscelreceipt clearing account in the amount of approximately $248 million.
laneous asset accounts.
6
14
T h e activity formerly included in the Office of Economic Opportunity
Non-interest bearing notes held by the I M F were redeemed1 and demand
Program has been transferred to the Community Service Administration.
liabilities to the Fund were increased by issuance of a letter of credit in a
7
Food stamp program outlays have been revised in this final statement to
like amount.
:
reflect an adjustment of -$426,946,000 to the amounts reported in the pre*Less than $500.00
' '
liminary June 1975 Statement.
**Less than $500,000.00

G)

TABLE HI-BUDGET RECEIPTS AND OUTLAYS-Continued (In thousands)
This Month

Classification of
OUTLAYS

Applicable
Receipts

Outlays

egislative Branch:
' Senate
House of Representatives
Joint items
Architect of the Capitol
;
Library of Congress
Government Printing Office:
General fund appropriations
Revolving fund (net)
General Accounting Office
United States Tax Court
Other
Proprietary receipts from the public
Intrabudgetary transactions
Total--Legislative Branch
le Judiciary:
Supreme Court of the United States
Courts of Appeals, District Courts, and other
judicial services
Federal Judicial Center
Other
Proprietary receipts from the public
Total—The Judiciary

$8,934
30,552
1,141
4,217
9,797
13,977
3,981
13,593
828
489

$9

3,201

-4
87,505
,

,

tecutive Office of the President:
Compensation of the President
The White House Office.
Office of Management and Budget,
Office of Telecommunications Policy
Special Action Office for Drug Abuse Prevention.
Other
Total—Executive Office of the President....

3,210

504

Comparable Period Prior Fiscal Year

Current Fiscal Year to Date
Net
Outlays

Outlays

$8,934
30,543
1,141
4,217
9,797

$102,237
179,033
44,989
50,893
100,795

13,977
3,981
13,593
828
489
-3,201
-4
84,294

106,735
14,701
125,941
11,028
5,114

504

Applicable
Receipts

$45

15,059

-3li
741,153

15,103

Net
Outlays

Outlays

Applicable
Receipts

Net
Outlays

$102,237
178,988
44,989
50,893
100,795

$93,066
158,093
37,178
48,139
86,121

$93,066
158,093
37,178
48,139
86,121

106,735
14,701
125,941
11,028
5,114
-15,059
-311
726,049

102,015
-6,396
106,920
13,479
2,507

102,015
-6,396
106,920
13,479
2,507
-15,190
-592
625,341

$15,190

-592
640,530

15,190

6,875

6,875

5,793

5,793

25

19,403
206
963
-25

268,038
2,374
8,547
2,079

268,038
2,374
8,547
-2,079

192,898
1,863
8,475
3,841

192,898
1,863
8,475
-3,841

25

21,050

285,833

2,079

283,754

209,029

3,841

205,188

21
1,602
2,075
305
5,795
1,868

21
1,602
2,075
305
5,795
1,868

250
15,294
21,736
7,754
33,794
13,999

250
15,294
21,736
7,754
33,794
13,999

250
10,384
18,271
2,385
21,463
13,312

250
10,384
18,271
2,385
21,463
13,312

11,665

11,665

92,826

92,826

66,065

66,065

23,103
14,009
94,966

311,746
205,858
95,337

311,374
205,858
831

289,690
250,085
3,364

19,403
206
963
21,075

6

nds Appropriated to the President:
Appalachian regional development programs
Disaster relief
Expansion of defense production
Foreign assistance:
International security assistance:
Liquidation of foreign military sales fund ...
Military assistance
Foreign military credit sales
Security supporting assistance
Emergency security assistance for Israel...
Military credit sales to Israel
Advances, foreign military sales
Proprietary receipts from the public:
Advances, foreign military sales
Other
Total--International security assistance
e footnotes on page 3.

23,108
14,009
94,948
3,722
52,874
27,593
101,770
182,515
-1,901
554,607

921,179

5

'-is
22,743

-61,543
555,663
246,586
395,769
930,239
-1,901
3,536,939

531,665
4,854

-19,021
52,874
27,593
101,770
182,515
-1,901
554,607
-531,665
-4,854

559,262

361,917

5,601,752

372
*94|505
22,743

-64,085
459,963
406,008
381,862
640,278
4,435
2,675,051

4,415,270
169,477

-84,285
555,663
246,586
395,769
930,239
-1,901
3,536,939
-4,415,270
-169,477

4,607,490

994,262

4,503,511

238
i59,*254
25,842

289,452
250,085
-155,890

3,167,364
109,095

-89,927
459,963
406,008
381,862
640,278
4,435
2,675,051
-3,167,364
-109,095

3,302,301

1,201,211

^_-_-_- - v f ^ - ^ ^ - . T ^ " ^ - ^ ^ ^ ° ^ ; ; > . " - "- "- "•"-"-"- V

- - ---"-"•-----

OUTLAYS—Continued

Funds Appropriated to the President—Continued
Foreign assistance - - Continued
Indochina postwar reconstruction assistance
International development assistance:
Multilateral assistance:
International financial institutions ....... .
International organizations and programs
Bilateral assistance:
Public enterprise funds:
Development loans revolving fund
Overseas Private Investment Corporation...
Inter-American Foundation
Other
Functional development assistance program...
Payment to foreign service retirement and
disability fund
American schools and hospitals abroad
Other assistance programs
Intragovernmental funds

Tnis Montn

Outlays

Applicable
Receipts

*-«« 1

:-----;

Net
Outlays

Comparable Period Prior Fiscal Year

Current Fiscal Year to Date

Outlays

Applicable
Receipts

Net
Outlays

Outlays

Applicable
Receipts

Net
Outlays

$91,213

$91,213

$496,437

$496,437

$246,316

$246,316

49,306
3,382

49,306
3,382

569,239
115,460

569,239
115,460

446,312
168,357

446,312
168,357

69,667
-6,508
482
495
48,586

564,850
63,964
7,744
4,367
401,201

258,757
12,307
7,732
1,204
401,201

568,428
19,362
6,294
3,580
161,503

16,090
20,547
261,140
5,710
112,761

16,090
20,547
261,140
5,710
-112,761

22,039
331,391
-1,258

98,325

16,090
5,168
30,798
1,092
-98,325

226,528

158,983

67,545

1,345,614

473,688

871,926

Total—International development assistance...

279,216

158,983

120,233

2,030,312

473,688

President's foreign assistance contingency fund ...

-2,140

-2,140

4,316

571,223

8,132,818

Total—Foreign assistance.
Other
Total—Funds Appropriated to the President
Department of Agriculture:
Departmental management
Science and education programs:
Agricultural Research Service
Animal and Plant Health Inspection Service
Cooperative State Research Service
National Agricultural Library
Total--Science and education programs

122,346
1,327
482
639
48,586

$52,679
7,835

145

16,090
5,168
30,798
1,092

1,289,469

718,245

-1,081
1,420,452

718,232

$306,093
51,657
12
3,164

$220,060
39,962
10
3,073

348,368
-20,600
6,283

507
161,503

62,888

22,039
331,391
-1,258
-62,888

1,111,339

325,993

785,347

1,556,625

1,726,007

325,993

1,400,015

4,316

25,224

5,081,177

3,051,641

6,501,059

5,176,055

-1,081

2,180

2,180

72,766

702,220

8,747,938

3,571,883

7,116,964

25,224
3,628,293

2,872,766
72,766

3,787,785

3,329,180

1,327

1,327

45,525

45,525

43,887

43,887

21,350
27,478
11,221
31,487
616

21,350
27,478
11,221
31,487
616

232,841
345,276
95,833
219,202
4,872

232,841
345,276
95,833
219,202
4,872

210,866
315,644
85,374
193,339
4,527

210,866
315,644
85,374
193,339
4,527

92,153

92,153

898,023

898,023

809,750

809,750

2,443
3,382
626

2,443
3,382
626

27,947
25,701
10,037

27,947
25,701
10,037

23,800
18,840
8,947

23,800
18,840
8,947

3,890
166,053

3,890
166,053

32,933
778,473

32,933
778,473

28,157
553,638

28,157
553,638

28,237
2,193
27,242
-37
532
244
39

28,237
2,193
27,242
-37
532
244
39

158,069
77,084
244,786
41,223
8,153
244
4,460

158,069
77,084
244,786
41,223
8^153
244
4,460

150,622
82,744
1,551
47,143
18,195

150,622
82,744
1,551
47,143
18,195

5,178

5,178

58,450

58,450

534,019

534,019

305,433

305,433

Agricultural economics:

International programs:
Foreign Agricultural Service
Foreign assistance and special export programs ...
Agricultural Stabilization and Conservation Service:
Sugar act program
,
Agriculture conservation program ( R E A P )
Cropland adjustment program
Emergency conservation measures
Forestry incentives programs
Other
Total--Agricultural Stabilization and
Conservation Service

01

0)

TABLE MI-BUDGET RECEIPTS AND OUTLAYS-Continued (In thousands)
This Month
Classification of
OUTLAYS--Continued

Outlays

jfepartment of Agriculture--Continued
Corporations:
Federal Crop Insurance Corporation:
Federal Crop Insurance Corporation fund...,
Administrative and operating expenses
,
Commodity Credit Corporation:
Price Support and related programs
Special activities:
Intragovernmental funds
,
National Wool Act program
,
Total--Commodity Credit Corporation....
Total--Corporations

Applicable
Receipts

Net
Outlays

Outlays

Net
Outlays

$45,680

$18,331
11,939

$30,511
11,456

$44,045

-$13,533
11,456

339,741

424,952

-85,211

3,211,577

2,487,189

724,388

5,378,355

4,374,288

1,004,067

8,381
2,385

16,974

-8,593
2,385

39,488
18,887

42,009

-2,521
18,887

179,442
7,735

29

179,413
7,735

350,507

441,926

-91,419

3,269,952

2,529,198

740,754

5,565,532

4,374,316

1,191,216

353,097

442,663

-89,566

3,345,903

2,574,878

771,024

5,607,500

4,418,361

1,189,138

78
2,199

825
18,891

825
18,891

1,905
17,388

3,856,371
2,517,933
598,025
365
35,118
134,298
10,400
7,152,511

4,754,750
2,650,701
766,468
64

1,716,770
458,308
2,859
33,990
117,246
6,185

8,171,983

-898,378
-132,768
-168,443
301
35,118
134,298
10,400
-1,019,472

8,171,983

188,833

Total--Rural development

468,047

188,833

279,214

7,172,227

12,481
10,211
6,990

oBee le»o+"otes on page 3.

Applicable
Receipts

$64,011
11,939

465,771

Total—Consumer Programs

Outlays

$3,030
-1,176

78
2,199
222,310
192,470
38,104
4,477
7,386
1,023

.

Net
Outlays

$736

105,377
129,911
28,779
-16
4,477
7,386
1,023
276,938

Food and Nutrition Service:
Child nutrition programs
Special milk program
• Food stamp program
vi Total--Food and Nutrition Service

Applicable
Receipts

$3,766
-1,176

Rural development:
Rural Development Service
Rural Electrification Administration
Farmers H o m e Administration:
Public enterprise funds:
Rural housing insurance fund
Agricultural credit insurance fund
Rural development insurance fund
Other
Rural water and waste disposal grants
Salaries and expenses
Other
Total--Farmers Home Administration

Soil Conservation Service:
Conservation operations
Watershed and flood prevention operations
Other
Consumer programs:
Agricultural Marketing Service:
Marketing Services
^ Funds for strengthening markets, income and
supply
Milk market orders assessment fund
Other
Total--Agricultural Marketing Service

Current Period Prior Fiscal Year

Current Fiscal Year to Date

116,933
62,559
9,325
16

12,481
10,211
6,990

1,905
17,388
1,655,906
1,623,198
309,661
7,547

1,290,034
93,572
148,647
-4,688
33,990
117,246
6,185

5,281,296

3,596,311

1,684,985

-999,756

5,300,589

3,596,311

1,704,277

187,197
144,142
63,410

187,197
144,142
63,410

165,135
131,576
56,553

165,135
131,576
56,553

3,519

3,519

40,171

40,171

33,318

33,318

27,734
3,676
3,605

1,833

27,734
1,843
3,605

469,014
22,309
43,644

24,008

469,014
-1,699
43,644

786,846
19,885
49,327

18,758

786,846
1,128
49,327

38,533

1,833

36,700

575,138

24,008

551,130

889,377

18,758

870,619

199,615
20,150
424,178
643,943

1,452,267
122,858
4,598,956
6,174,080

1,452,267
122,858
4,598,956
6,174,080

751,325
50,236
2,844,815
3,646,377

680,643

6,749,219

6,725,210

4,535,753

199,615
, 20,150
7
424,178
643,943
682,476

1,833

24,008

751,325
50,236
2,844,815
3,64M*r
18,758

4,516,996

^omparaDie Period Prior Fiscal xear

lU LIHIC

U i d S B U l C i t U U n OI

OUTLAYS—Continued

Outlays

department of Agriculture—Continued
Forest Service:
Intragovernmental funds
Forest protection and utilization.
Construction and land acquisition
Forest roads and trails
Forest Service permanent appropriations
Cooperative work
Other
Total—Forest Service

Total—Department of Agriculture

1,901,912

Promotion of Industry and Commerce:
Domestic and International Business Administration,
Minority Business Enterprise
United States Travel Service
Total—Promotion of Industry and Commerce
3cience and Technology:
National Oceanic and Atmospheric Administration...
National Fire Prevention and Control
Administration
Patent and Trademark Office
Science and Technical Research
Total—Science and Technology
Maritime Administration:
Public enterprise funds
Ship construction
Operating-differential subsidies
Other
Total--Maritime Administration ,
/oprietary receipts from the public ,
[ntrabudgetary transactions
Total—Department of Commerce ,

,
,
,
,

,

Outlays

Applicable
Receipts

-107,113

740,442

1,161,470

21,008,488

-425
-957

13,738
76,819

Net
Outlays

-$5,492
526,832
87,515
114,545
194,659
60,234
15,441
993,733

-$5,492
526,832
87,515
114,545
194,659
60,234
15,441
993,733

$107,113

-425
-957

,

Net
Outlays

-$16,655
76,106
2,655
16,161
1,742
-42,733
3,008
40,285

-$16,655
76,106
2,655
16,161
1,742
-42,733
3,008
40,285

Proprietary receipts from the public

spartment of Commerce:
General Administration.
Social and Economic Statistics Administration
Economic Development Assistance:
Economic Development Administration:
Economic development revolving fund
Economic development assistance programs
Other
Regional Action Planning Commissions
Total--Economic Development Assistance ,

Applicable
Receipts

Outlays

Applicable
Receipts

-$2,667
440,866
33,825
110,570
181,628
59,573
9,400
833,194

-$2,667
440,866
33,825
110,570
181,628
59,573
9,400
833,194

$512,744

-512,744

11,283,613

9,724,876

18,422,752

13,738
76,819

21,666
59,468

Net
Outlays

$622,430

-622,430

8,655,861

9,766,891
21,666
59,468

8
27,105
24,073
6,413

2,910

-2,902
27,105
24,073
6,413

20,413
235,133
44,005
64,236

40,893

-20,480
235,133
44,005
64,236

19,579
236,633
20,151
57,972

40,605

-21,027
236,633
20,151
57,972

57,599

2,910

54,689

363,787

40,893

322,894

334,335

40,605

293,730

5,227
4,151
1,315

5,227
4,151
1,315

66,180
50,305
11,667

66,180
50,305
11,667

58,308
46,637
10,906

58,308
46,637
10,906

10,693

10,693

128,151

128,151

115,852

115,852

39,059

445,447

443,316

411,075

1,246
7,013
5,612

3,234
71,119
74,125

3,234
71,119
74,125

8,712
131,306

39,162

102

1,246
7,013
5,612

2,132

4,545

406,529
8,712
131,306

53,033

102

52,930

593,925

2,132

591,794

551,093

4,545

546,548

1,384
27,222
19,089
3,611

1,526

-142
27,222
19,089
3,611

6,802
240,828
243,152
65,663

21,702

-14,900
240,828
243,152
65,663

3,341
200,257
257,919
59,435

18,117

-14,775
200,257
257,919
59,435

51,305

1,526

49,779

556,445

21,702

534,743

520,953

18,117

502,836

5,933

-5,933
-10,159

56,264

-56,264
-28,951

62,361

-28,951

-22,468

-62,361
-22,468

150,618

1,703,916

1,582,926

1,580,899

125,629

1,455,271

-10,159
161,090

10,472

120,990

00

TABLE III--BUDGET RECEIPTS AND OUTLAYS-Contlnued (In thousands)
Current Fiscal Year to Date

Classification of
O U T L A Y S — C ontinued

Outlays

Department of Defense—Military:
Military personnel:
Department of
the ANavy
rmy
Department
of the

Operation and maintenance:
Department of
of the
the ANavy
rmy.
Department
Department of the Air Force,
Defense agencies
»

Procurement:
Department of the A r m y
Department of the Navy
Department of the Air Force

Research, development, test and evaluation:
Department of the A r m y

<>...

Applicable
Receipts

Net
Outlays

Comparable Period Prior Fiscal Year

Current Fiscal Year to Date
Outlays

Applicable
Receipts

Net
Outlays

Outlays

Applicable
Receipts

Net
Outlays

^

£

v

$822,003
692,142
640,937
2,155,082

$822,003
692,142
640,937
2,155,082

$9,271,331
7,882,597
7,813,683
24,967,611

$9,271,331
7,882,597
7,813,683
24,967,611

$8,732,551
7,336,978
7,658,659
23,728,188

$8,732,551
7,336,978
7,658,659

549,809

549,809

6,241,772

6,241,772

5,127,554

5,127,554

545,884
782,655
718,113
196,348
2,243,000

545,884
782,655
718,113
196,348
2,243,000

7,544,610
8,043,606
8,380,381
2,327,939
26,296,536

7,544,610
8,043,606
8,380,381
2,327,939
26,296,536

7,039,395
6,511,116
7,336,135
1,591,434
22,478,080

7,039,395
6,511,116
7,336,135
1,591,434

192,525
745,899
460,811
10,155
1,409,390

192,525
745,899
460,811
10,155
1,409,390

2,514,507
8,056,830
5,389,674
80,830
16,041,841

2,514,507
8,056,830
5,389,674
80,830
16,041,841

2,784,016
7,026,616
5,366,504
64,112
15,241,248

176,045
274,351
231,838
52,570

176,045
274,351
231,838
52,570

1,964,406
3,020,979
3,307,947
573,167

1,964,406
3,020,979
3,307,947
573,167

2,189,724
2,623,433
3,239,566
529,563

2,189,724
2,623,433
3,239,566
529,563

734,805

734,805

8,866,499

8,866,499

8,582,286

8,582,286

39,016
54,445
30,839
1,739
126,038

39,016
54,445
30,839
1,739
126,038

624,246
516,518
303,380
17,623
1,461,767

624,246
516,518
303,380
17,623
1,461,767

693,362
413,746
286,042
13,390
1,406,540

693,362
413,746
286,042
13,390
1,406,540

23,728,188

22,478,080
2,784,016
7,026,616
5,366,504
64,112
15,241,248

Total—Research, development, test and
Military construction:

Family housing:
958
108,064

$1,746

-789
108,064

5,683
1,121,738

$3,123

2,559
1,121,738

7,825
878,914

$2,417

5,408
878,914

109,022

1,746

107,275

1,127,421

3,123

1,124,297

886,739

2,417

884,322

8,280
649
44,474
5,519

86,404
4,382
402,411
33,097

86,404
4,382
402,411
33,097

75,333
3,895

8,280
649
44,474
5,519

75,333
3,895

T A B L E III--BUDGET R E C E I P T S A N D OUTLAYS—Continued (In thousands)

Department of Defense--Military--Continued
Revolving and management funds:
Public enterprise funds:
Department of the A r m y
Department of the Navy
Department of the Air Force
Intragovernmental funds:
Department of the A r m y
Department of the Navy
Department of the Air Force
Defense agencies
Total--Revolving and management funds
Miscellaneous trust revolving funds
Miscellaneous trust funds
Proprietary receipts from the public
Intrabudgetary transactions
Total--Department of Defense—Military
pepartment of Defense--Civil:
Cemeterial expenses, A r m y
Corps of Engineers:
Intragovernmental funds
Other
Proprietary receipts from the public
Ryukyu Islands, A r m y
Wildlife conservation, etc., military reservations ..
Soldiers' and Airmen's Home:
Soldiers' and Airmen's H o m e revolving fund
Other
The Panama Canal:
Panama Canal Company
Other
Proprietary receipts from the public
Intrabudgetary transactions
Total--Department of Defense—Civil
department of Health, Education, and Welfare:
Food and Drug Administration:
Revolving fund for certification and other services
Other
Health Services Administration:
Health maintenance organization loan and loan
guarantee fund
Health services
Indian health
Other
Center for Disease Control
lee footnotes on page 3.

Applicable
Receipts

Outlays

Comparable Period Prior Fiscal Year

Current Fiscal Year to Date

This Month
Classification of
O U T L A Y S - -Continued

Net
Outlays

Applicable
Receipts

Outlays

(*)
$164
2

(*)
$1,152
2

3,065
2

-3,500
-75,904
-60,868
-34,541

-3,500
-75,904
-60,868
-34,541

38,581
-123,393
-74,669
188,445

Net
Outlays

Outlays

$1
36,704
2

38,000

38,581
-123,393
-74,669
188,445

12,645
134,322
74,292
71,246

-$33,639

Applicable
Receipts

$19
62,402
15

-174,647

-988

-173,659

32,032

-33,639

65,671

330,505

62,436

9,812
1,418

7,355

2,456
1,418
7,087
-5,574

95,107
7,634

91,231

64,965
6,797

82,643

-6,523

3,876
7,634
-177,152
-6,523

-6,552

7,216,049

85,657,991

85,420,124

77,925,579

523

7,751

7,751

11,104

-14,691
2,089,095

-14,691
2,089,095
-49,671
-408
868

-641
1,690,819

12

239

-7,087
-5,574
7,217,077

1,027

523
-45,593
262,869
1,509
70
101
27
1,113
13,359
10,404

25

-45,593
262,869
-1,509
-70
101
2
1,113

11,073
1,130

-4,895

177,152

2
868
286
15,744

2,286
10,404
-1,130
-4,895

-20,945

251,704
67,928

237,867

49,671
410
274
254,728
41,494

152,638
300,135

35,539
381

-84
595

254

15,744

14,257

-3,023
67,928
-41,494
-20,945

213,031
62,300

213,044
37,097

"*-23,'625

237,909

13,807

224,102

2,397,740

346,576

2,051,164

1,967,995

286,316

460
14,877

404

56
14,877

5,490
200,924

5,715

-226
200,924

5,208
165,084

5,411

50,511
22,684
2
8,700

-33,000
785,037
282,795
519
154,491

-33,000
785,037
282,795
519
154,491

680,431
216,057
9,664
133,515

50,511
22,684
2
8,700

(0

TABLE HI-BUDGET RECEIPTS AND OUTLAYS-Contlnued (In thousands)
This Month
Classification of
OUTLAYS—Continued
Outlays
artment of Health, Education, and Welfare—Continued
ational Institutes of Health:
Intragovernmental funds
Cancer research
Heart and lung research
Arthritis, metabolism and digestive diseases
Neurological diseases and stroke
Allergy and infectious diseases
General medical science
Child health and human development
Other research institutes
Other
Total--National Institutes of Health
Alcohol, Drug Abuse, and Mental Health
Administration:
Alcohol, drug abuse, and mental health
Saint Elizabeths Hospital
Other
iealth Resources Administration:
Public enterprise funds
Health resources
Dffice of Assistant Secretary for Health.
education Division:
Office of Education:
Student loan insurance fund.
Higher education facilities loan and insurance
fund
Elementary and secondary education.
Indian education,
School assistance in federally affected areas
Emergency school aid,
Education for the handicapped
Occupational, vocational, and adult education.....
Higher education
Library resources
Educational development
Other
Total—Office of Education
National Institute of Education
Office of the Assistant Secretary for Education
Total—Education Division
Social and Rehabilitation Service:
Public assistance:
Health care services
Public assistance and other income supplements«.
Social services
W o r k incentives
4 Assistance to refugees in the United States
Other
Total—Social and Rehabilitation Services

Applicable
Receipts

Comparable Period Prior Fiscal Year

Current Fiscal Year to Date
Net
Outlays

Outlays

Applicable
Receipts

Net
Outlays

Outlays

Applicable
Receipts

Net
Outlays

$109,420
52,204
14,128
3,193
7,608
-226
6,185
8,586
13,612
3,660
218,370

$109,420
52,204
14,128
3,193
7,608
-226
6,185
8,586
13,612
3,660
218,370

$1,329
612,246
303,007
145,032
122,092
104,693
147,301
130,435
264,063
59,146
1,889,343

$1,329
612,246
303,007
145,032
122,092
104,693
147,301
130,435
264,063
59,146
1,889,343

$19,594
423,063
269,311
149,182
118,107
104,815
161,037
117,834
193,951
45,837
1,602,730

$19,594
423,063
269,311
149,182
118,107
104,815
161,037
117,834
193,951
45,837
1,602,730

41,004
3,554
34

41,004
3,554
34

905,100
45,163
10

905,100
45,163
10

591,211
40,388
10

591,211
40,388
-24

$10,061

3,093
58,087
27,119

74,330
1,099,257
65,505

1,212

11,117
1,099,257
65,505

32,427
929,013
55,410

1,970

9,024

124,882

13,795

111,087

94,230

26,226
137,536
492
28,733
8,447
17,054
70,879
13,003
45,745
8,882
13,864
379,884

41,752
2,277,069
40,035
618,711
215,943
151,244
652,751
1,838,066
225,810
174,505
97,906
6,458,674

16,293
2,277,069
40,035
618,711
215,943
151,244
652,751
1,838,066
225,810
174,505
97,906
6,419,420

39,816
1,666,900
15,694
558,527
204,575
122,744
569,638
1,176,308
149,896
246,112
78,617
4,923,058

25,382
1,096

82,771
12,557

82,771
12,557

96,635
1,488

406,362

6,554,002

6,514,748

5,021,180

809,227
628,933
205,079
32,017

6,840,366
5,120,577
2,048,758
313,837
88,136
67,783

6,840,366
5,120,577
2,048,758
313,837
88,136
67,783

5,818,391
5,423,353
1,472,201
339,862

13,155
58,087
27,119
10,995
27,215
137,536
492
28,733
8,447
17,054
70,879
13,003
45,745
8,882
13,864
382,843

989

2,959

25,382
1,096
409,321

809,227
628,933
205,079
32,017
19,399
3,553
1,698,208

2,959

19,399
3,553
1,698,208

14,479,457

25,459

39,254

39,254

14,479,457

107,770
63,786
13,225,363

$33
5,985

10,406
27,735

38,142

26,442
929,013
55,410
83,823
12,081
1,666,900
15,694
558,527
204,575
122,744
569,638
1,176,308
149,896
246,112
78,617
4,884,916
96,635
1,488

38,142

4,983,039

5,818,391
5,423,353
1,472,201
339,862
107,770
63,786
13,225,363

V
U-

T A B L E III—BUDGET R E C E I P T S A N D OUTLAYS—Continued (In thousands)
This Month
Classification of
OUTLAYS--Continued

•epartment of Health, Education, and Welfare--Continued
Social Security Administration:
Intragovernmental funds
Payments to social security trust funds:
Health care services
General retirement and disability insurance
Special benefits for disabled coal miners
Supplemental security income program
Federal old-age and survivors insurance trust fund:
Administrative expenses and construction
Benefit payments
Vocational rehabilitation services
Payment to railroad retirement account
Total—FOASI trust fund

Outlays

Applicable
Receipts

$503

Comparable Period Prior Fiscal Year

Current Fiscal Year to Date
Net
Outlays

$503

Outlays

Applicable
Receipts

Net
Outlays

Outlays

Applicable
Receipts

-$933

$757

$757

Net
Outlays

2,527,706
493,788
1,000,055
2,256,654

2,527,706
493,788
1,000,055
2,256,654

847,837
54,838,818
7,731
981,785

723,362
47,847,417
3,873
908,585

723,362
47,847,417
3,873
908,585

56,676,171

56,676,171

49,483,237

49,483,237

22,665
663,851
9,217
28,514

252,148
7,630,633
70,936
28,514

252,148
7,630,633
70,936
28,514

154,281
6,157,797
49,670
22,327

154,281
6,157,797
49,670
22,327

724,247

724,247

7,982,231

7,982,231

6,384,075

6,384,075

12,952
910,765

12,952
910,765

256,142
10,355,390

256,142
10,355,390

258,066
7,806,687

258,066
7,806,687

Total--FHI trust fund

923,717

923,717

10,611,532

10,611,532

8,064,753

8,064,753

Federal supplementary medical ins. trust fund:
Administrative expenses and construction
Benefit payments

47,638
339,204

47,638
339,204

404,458
3,765,397

404,458
3,765,397

409,150
2,873,649

409,150
2,873,649

Total—FSMI trust fund

386,842

386,842

4,169,855

4,169,855

3,282,799

3,282,799

8,343,559

8,343,559

88,546,903

88,546,903

73,492,135

73,492,135

131
-108
2,558
7,576

131
-108
2,558
7,576

1,994
9,887
27,397
84,574

1,994
9,887
27,397
84,574

1,817
12,168
19,286
79,228

1,817
12,168
19,286
79,228

10,157

10,157

123,852

123,852

112,499

112,499

97,478
75,315
121

97,478
75,315
121

1,109,310
511,922
2,499

1,109,310
511,922
2,499

958,465
420,929
2,777

958,465
420,929
2,777

-6,779
1,685
8,104
106

-6,779
1,685
8,104
106
-2,199

-232
19,616
105,234
1,573

-232
19,616
105,234
1,573
-14,170

-5,090
13,754
72,821
1,048

-5,090
13,754
72,821
1,048
-15,578 X

129,299

129,299

83,696
382,745

"83^696
382,745

73,213
4,655,156
2,356
981,785

73,213
4,655,156
2,356
981,785

847,837
54,838,818
7,731
981,785

5,712,510

5,712,510

Federal disability insurance trust fund:
Administrative expenses and construction
Benefit payments
Vocational rehabilitation services
Payment to railroad retirement account

22,665
663,851
9,217
28,514

Total—FDI trust fund
Federal hospital insurance trust fund:
Administrative expenses and construction
Benefit payments

Total--Social Security Administration
Special institutions:
American Printing House for the Blind
National Technical Institute for the Deaf
Gallaudet College
Howard University
Total--Special institutions
Assistant Secretary for Human Development:
Elementary Secondary and vocational education
Social services
Research and training activities overseas
Departmental management:
Intragovernmental funds
Office for Civil Rights
General departmental management
Other
Proprietary receipts from the public

;2,199

2,859,995
499,323
967,782
4,779,258

2,859,995
499,323
967,782
4,779,258

U4,170

$15,578

X

TABLE HI—BUDGET RECEIPTS AND OUTLAYS—Continued (In thousands)

ment of Health, Education, and Welfare—Continued
budgetary transactions:
Payments for health insurance for the aged:
Federal hospital insurance trust fund
Federal supplementary medical insurance trust
fund
Payments for military service credits and special
benefits for the aged:
Federal old-age and survivors insurance trust fund
Federal disability insurance trust fund
Federal hospital insurance trust fund
Receipts transferred to railroad retirement account.
Interest on reimbursement of administrative and
vocational rehabilitation expenses:
Federal old-age and survivors insurance trust fund
Federal disability insurance trust fund
Federal hospital insurance trust fund
Federal supplementary medical insurance trust
fund
Other
Total--Department of Health, Education, and
Welfare
>artment of Housing and Urban Development:
[ousing production and mortgage credit:
Federal Housing Administration:
Public enterprise funds:
College housing loans and other expenses
Federal Housing Administration Fund
Other
Other
Total--Federal Housing Administration .
Government National Mortgage Association:
Public enterprise funds:
Special assistance functions
M a n a g e m e n t and liquidating functions
Guarantees of mortgage-backed securities.
Participation sales fund
Total--Government National Mortgage
Association
Total—Housing production and mortgage credit
ousing management:
Public enterprise funds:
Rental housing assistance fund
Other.
Intragovermental funds
Housing payments:
College housing grants
ggw-rent public housing
t o m e ownership assistance ...
tenia! housing assistance
" Supplement
•
Total Housing m a n a g e m e n t

Outlays

Applicable
Receipts

-$129,299

-1,010,299

-24,519

Comparable Period Prior Fiscal Year

Current Fiscal Year to Date

This Month
Classification of
OUTLAYS--Continued

Net
Outlays

Outlays

Applicable
Receipts

ro

Net
Outlays

Outlays

-$481,353

-$481,353

-$450,780

-$129,299

-2,329,590

-2,329,590

-2,028,926

-1,010,299

-447,323
-52,000
-48,000
4,010,299

-447,323
-52,000
-48,000
-1,010,299

-441,788
-52,000
-48,000
-930,912

1,886
304
-1,054

1,886
304
-1,054

1,074
-2,661
269

-24,519

-1,136
-27,427

-1,136
-27,427

1,318
-21,113

Applicable
Receipts

9,931,712

$15,623

9,916,089

112,533,108

$122,352

112,410,756

93,803,511

$65,149

1,544
325,277
2,330
440

6,706
139,278
44,591

-5,162
185,999
-42,261
440

113,436
2,487,629
667,156
13,673

168,854
1,399,180
723,111

-55,418
1,088,449
-55,955
13,673

136,227
2,146,618
658,912
5,246

172,256
1,283,851
660,655

329,592

190,575

139,016

3,281,894

2,291,145

990,749

2,947,003

2,116,761

260,248
3,349
485
7,365

347,472
25,573
1,284

-87,224
-22,224
-798
7,365

4,044,129
61,913
6,443
-4,676

1,863,861
123,561
16,165

2,180,268
-61,648
-9,723
-4,676

1,895,200
69,453
3,051
32,901

1,853,427
135,693
10,946
2,500

271,448

374,329

-102,881

4,107,809

2,003,587

2,104,222

2,000,604

2,002,567

601,039

564,904

36,135

7,389,703

4,294,731

3,094,971

4,947,607

4,119,328

1,075
24,186
-1,523

2,380
3,183

-1,306
21,002
-1,523

-64
69,980
-37,554
14,799
1,311,617

15,138
12,652

-15,202
57,328
-37,554

-558
731
-3,482

10,573
6,847

14,799
1,311,617
193,996
391,949
174,746
24,430
2,116,107

12,147
1,115,656
249,473
273,666
137,383
26,040
1,811,057

854

854

100,422
16,855
34,623
17,073
697
194,261

100,422
16,855
34,623
17,073
697
188,697

5,564

193,996
391,949
174,746
24,430
2,143,898

27,791

17,419

1,793,638

Classification of
OUTLAYS—Continued

Department of Housing and Urban Development—Continued
Community planning and development:
Public enterprise funds:
Urban renewal fund.
Rehabilitation loan fund
Public facility loans
Comprehensive planning grants
Salaries, expenses and other
Model cities programs
Open space land programs
Grants for neighborhood facilities
Grants for basic water and sewer facilities
Total—Community planning and development
Federal Insurance Administration
Policy development and research
Fair Housing and equal opportunity
Departmental management:
Intragovernmental funds
Other
Other
Proprietary receipts from the public
Total—Department of Housing and Urban
Development
Department of the Interior:8
Land and Water Resources:
Bureau of Land Management:
Management of lands and resources
Payments to counties, Oregon and California
grant lands
Payments to states from receipts under Mineral
Leasing Act
Other
Bureau of Reclamation:
Colorado River and Fort Peck projects
Construction and rehabilitation
Operation and maintenance
Other
Office of Water Research and Technology
Total—Land and Water Resources
Fish and Wildlife and Parks:
Bureau of Outdoor Recreation
United States Fish and Wildlife Service:
Resource management
Recreational resources
Other
National Park Service:
Operation of the National Park System
Planning and construction
Other
Total--Fish and Wildlife and Parks

Outlays

$165,863
3,902

Applicable
Receipts

$34,055
1,651

Net
Outlays

$131,808
2,251

Outlays

217,310

35,706

181,603

$1,949,100
47,779
45,656
96,883
80,175
344,588
51,123
32,646
105,774
2,753,724

6,782
4,780
344

712

6,069
4,780
344

53,941
58,652
11,887

-8,248
1,441
3,521
-97

-20,248
64,699
14,932

6,119
14,828
26,597

-8,248
1,441
3,503

1,021,211

"*'6,*ii9
14,828
26,597

-18
97
606,965

12,221

3,250

414,247

12,471,188

12,221

Applicable
Receipts

$601,668
18,339
22,270

12,084

642,277

3,629
2,468
4,982,981

Net
Outlays

$1,347,432
29,440
23,386
96,883
80,175
344,588
51,123
32,646
105,774
2,111,447

Outlays

J, 056,324
22,785
45,538
101,302
36,298
468,475
79,928
40,465
136,055
2,987,169

41,858
58,652
11,887

61,884
58,382
9,777

-20,248
64,699
11,303
-2,468

-2,396
47,796
2,388

Applicable
Receipts

$930,304
17,940
27,254

975,497
14,690

3,946
6,968

Net
Outlays

; 1,126,021
4,845
18,284
101,302
36,298
468,475
79,928
40,465
136,055
2,011,672
47,194
58,382
9,777
-2,396
47,796
-1,558
-6,968

7,488,207

9,923,664

159,861

159,861

105,825

105,825

57,789

57,789

47,191

47,191

3,250

117,151
50,087

117,151
50,087

56,748
36,736

56,748
36,736

5,137,849

4,785,815

9,752
25,216
11,184
-41,379
2,117

-5,042

14,794
25,216
11,184
-41,379
2,117

105,820
261,781
101,178
67,236
23,252

54,161

51,659
261,781
101,178
67,236
23,252

125,918
233,046
86,342
55,081
26,594

50,577

75,341
233,046
86,342
55,081
26,594

22,361

-5,042

27,403

944,155

54,161

889,993

773,479

50,577

722,901

38,842

38,842

288,871

288,871

252,970

252,970

7,299
11,557
194

7,299
11,557
194

99,211
68,019
27,812

99,211
68,019
27,812

83,307
51,185
27,013

83,307
51,185
27,013

19,608
4,769
7,354

19,608
4,769
7,354

224,209
56,092
61,497

224,209
56,092
61,497

170,890
39,778
39,815

170,890
39,778 \
39,815

89,623

89,623

825,709

825,709

664,958

664,958 ^

ee footnotes on page 3.

0)

TABLE HI-BUDGET RECEIPTS AND OUTLAYS-Continued (In thousands)
>
Current Fiscal Year to Date

This Month
Classification of
O U T LAYS- -C ontinued
_,artment of the Interior—Continued
Energy and Minerals:
Geological Survey
Mining Enforcement and Safety Administration and
Bureau of Mines:
Other,
Bonneville Power Administration.

Outlays

Applicable
Receipts

$19,422
$637

Net
Outlays

Outlays

Applicable
Receipts

Comparable Period Prior Fiscal Year

Net
Outlays

Outlays

Applicable
Receipts

N

Net
Outlays

$178,363

$224,910

$178,363
6,437
161,426
152,798
6,202

$8,052

25,758

-455
181,562
164,379
6,423

-1,616
161,426
152,798
6,202

$19,422

$224,910
6,901
181,562
190,136
6,423

$7,356

587
19,783
15,770
610

-161,817

-50
19,783
177,587
610

56,172

-161,180

217,352

609,931

33,113

576,818

505,226

8,052

497,173

1,831
42,623
15,139
7,599

241

1,590
42,623
15,139
7,599

9,026
469,155
143,635
219,368

1,800

7,226
469,155
143,635
219,368

2,251
401,386
129,004
316,259

2,407

-156
401,386
129,004
316,259

67,192

241

66,951

841,184

1,800

839,384

848,899

2,407

846,492

107,025
44,958
1,074,821

948,343

-47,473

107,025
44,958
-1,074,821
-47,473

101,776
31,316

247,460

8,449
2,332
-247,460
-9,847

-123,670

101,776
31,316
-948,343
-123,670

154,803

3,325,490

2,161,594

2,801,983

1,009,380

1,792,603

2,062
17,422
37,680
12,307

21,015
226,391
438,501
178,765

21,015
226,391
438,501
178,765

17,319
183,031
380,580
148,847

-999
-16
20,127
83,339
10,336
-2,278
179,980

1,039
7,026
225,607
852,863
132,230

-1,195
6,642
203,311
770,428
97,635

2,083,436

1,039
-233
225,607
852,863
132,230
-9,271
2,066,906

1,806,598

592,696
139,127
121,284

592,696
139,127
121,284

2,803,020
372,646
748,648

2,803,020
372,646
748,648

1,453,589
604,978
361,905

1,453,589
604,978
361,905

9,759

9,759

-18,666

-18,666

60,011

60,011

372,000
-4,217

372,000
-4,217

785,000
69,270

785,000
69,270

-8,524
61,038

-8,524
61,038

Bureau of Indian Affairs:
Indian tribal funds

8,449
2,332
Proprietary receipts from the public

-9,847
236,281

Department of Justice:
General administration
Legal activities
Federal Bureau of Investigation
Federal Prison System:
Other

o

81,478

2,062
17,422
37,680
12,307
-999
634
20,127
83,339
10,336
182,908

650

2,278
2,928

1,163,896

7,258

9,271
16,530

17,319
183,031
380,580
148,847
6,928

3,147
10,074

-1,195
-285
203,311
770,428
97,635
-3,147
1,796,523

Jepartment of Labor:
Manpower Administration:
Temporary and emergency employment assistance ..
Grants to states for unemployment insurance and
Advances to the unemployment trust fund and other

o

This Month
Classification of
OUTLAYS—Continued

Department of Labor--Continued
Unemployment trust fund:
Unemployment insurance and employment services:
Grants to States for unemployment insurance and
employment services
Federal—State unemployment insurance:
State unemployment benefits
Federal administrative expenses:
Direct expenses, reimbursements and
recoveries
Interest on refunds
"!''"."!"
Repayment of advances to the general fund!!!"."."
Railroad unemployment insurance:
Railroad unemployment benefits
Administration expenses
Payments of interest on borrowings from
railroad retirement account

Outlays

Comparable Period Prior Fiscal Year

Current Fiscal Year to Date

Applicable
Receipts

Net
Outlays

Outlays

Applicable
Receipts

Net
Outlays

Outlays

Applicable
Receipts

Net
Outlays

$122,521

$122,521

$1,117,141

$1,117,141

$831,829

$831,829

1,475,206

1,475,206

11,958,177

11,958,177

5,138,719

5,138,719

2,926
116

2,926
116

61,144
660

61,144
660

69,956
625
50,000

69,956
625
50,000

5,888
41

5,888
41

67,113
6,888

67,113
6,888

50,472
6,885

50,472
6,885

80

80

13,211,123

6,148,566

6,148,566

17,971,039

17,971,039

8,681,563

8,681,563

1,885

27,388

27,388

23,550

23,550

5,691
35,283
160
9,257
3,196
3,014
-68
-372,147

71,991
192,334
2,723
90,115
52,150
27,162

55,519
106,523
2,516
69,313
48,681
21,408

-785,147

71,991
192,334
2,723
90,115
52,150
27,162
-1,187
-785,147

-40,976

55,519
106,523
2,516
69,313
48,681
21,408
-1,968
-40,976

2,523,618

17,649,755

17,648,568

8,968,097

-783
5,131

-783
5,131

-468
378,865

-468
378,865

-2,242
328,848

-2,242
328,848

5,593

5,593

30,216

30,216

28,354

28,354

24,120
5,100
476

24,120
5,100
476

29,055
55,322
4,019

29,055
55,322
4,019

36,935
39,358
3,808

36,935
39,358
3,808

Total--Administration of foreign affairs

39,637

39,637

497,009

497,009

435,061

435,061

International organizations and conferences
International commissions
Educational exchange
"" *"
Other
!'*'"!''"''"*!
Proprietary receipts from the public
Intrabudgetary transactions:
Foreign service retirement and disability fund:
Receipts transferred to civil service retirement
and disability fund.
General fund contributions
Other
'.

1,079
2,456
6,180
21,084

1,079
2,456
6,180
21,084
-278

222,733
22,286
58,331
97,268

222,733
22,286
58,331
97,268
-7,249

223,398
16,827
54,496
52,679

223,398
16,827
54,496
52,679
-7,477

-433
-45,135
-519

-103
-36,935
-2,719

844,292

742,704

Total--Unemployment trust fund

1,606,698

1,606,698

13,211,123

Total--Manpower Administration

2,837,346

2,837,346

1,885
5,691
35,283
160
9,257
3,196
3,014

Labor-Management Services Administration
Employment Standards Administration:
Salaries and expenses
Special benefits
other
"!"'*'*'!
Occupational Safety and Health Administration ..''.'."
Bureau of Labor Statistics
Departmental management
...'.
Proprietary receipts from the public
"
Intrabudgetary transactions
Total—Department of Labor
Department of State:
Administration of foreign affairs:
Intragovernmental funds
Salaries and expenses
'.'.'.'.
Acquisition, operation and maintenance of buildings* *
abroad
Payment to foreign service retirement and disability
fund
Foreign service retirement and disability fund*.'.'.'.".'.'
Other

Total--Department of State

-372,147
2,523,685

68

278

-40,200
-86
30,150

278

$1,187

1,187

7,249

-40,200

-433
-45,135
-519

29,872

851,541

7,249

$1,968

1,968

7,477

8,966,129

-103
-36,935
-2,719
7,477

735,227

01

TABLE HI-BUDGET RECEIPTS AND OUTLAYS-Contlnued (In thousands)

Applicable
Receipts

Outlays

Comparable Period Prior Fiscal Year

Current Fiscal Year to Date

This Month
Classification of
O U T L A Y S - -Continued

Net
Outlays

Outlays

Applicable
Receipts

0)

Net
Outlays

Outlays

Applicable
Receipts

Net
Outlays

Department of Transportation:
$17,728

$17,728

$65,329

-225
449
58,791
7,492
9,343
5,666
81,516

4,286
5,002
652,273
106,110
104,875
60,790
933,337

$4,531

5
137,661
99
2,716

5
137,661
99
2,716

26
1,394,715
13,363
30,344

5,954

30,428
19,219
2,304

30,428
19,219
2,304

-31

-31

51,920

51,920

291,870
223,351
63,612
7
218
579,058

192,400

192,400

2,017,507

4,261
2,305

4,261
2,305

276,797
2,001
6,659

$49,249

$65,329

$49,249

-246
5,002
652,273
106,110
104,875
60,790
928,805

4,407
-7,337
574,385
131,486
86,397
65,619
854,958

$4,442

-36
-7,337
574,385
131,486
86,397
65,619

4,442

850,515

-5,928
1,394,715
13,363
30,344

394
1,290,781
18,733
24,131

19

291,870
223,351
63,612
7
218
579,058

242,999
207,203
68,146
39
2,727
521,114

2,011,552

1,855,152

31,074
67,653

31,074
67,653

28,268
47,496

28,268
47,496

276,797
2,001
6,659

4,619,181
37,006
81,536

4,619,181
37,006
81,536

4,464,462
23,002
22,100

4,464,462
23,002
22,100

292,023

292,023

4,836,450

4,836,450

4,585,327

4,585,327

1,820
18,100
-3,973

1,820
18,100
-3,973

39,106
105,368
5,158

39,106
105,368
5,158

38,649
89,449
29,083

38,649
89,449
29,083

Coast Guard:
201
449
58,791
7,492
9,343
5,666
81,941
Federal Aviation Administration:
Aviation w a r risk insurance revolving fund.
Operations
Civil supersonic aircraft development—termination.
Airport and airway trust fund:
Grants-in-aid for airports
Facilities and equipment
Research, engineering and development
Other

o..... c

$426

426

4,531

5,954

375
1,290,781
18,733
24,131
242,999
207,203
68,146

39
2,727
521,114

19

1,855,134

Federal Highway Administration:
Other
Highway trust fund:

National Highway Traffic Safety Administration:

Federal Railroad Administration:

Grants to National Railroad Passenger Corporation.

Saint Lawrence Seaway Development Corporation

5,061
3,309
8,614
78,100
1,135

5,928

-867
3,309
8,614
78,100
1,135

52,614
51,078
169,004
299,000
14,827

54,222

-1,609
51,078
169,004
299,000
14,827

26,354
38,269
22,518
128,600
33,643

27,424

-1,070
38,269
22,518
128,600
33,643

96,219

5,928

90,291

586,522

54,222

532,300

249,384

27,424

221,960

136,222
537

124
1,304
3,349

136,098
-767
-3,349

753,742
5,264

496
6,764
29,252

753,246
-1,500
-29,252

439,532
4,700

20,579
7,459
31,342

418,954
-2,759
-31,342

833,017
—

11,131

821,887

9,347,781

101,219

9,246,562

8,195,482

91,264

8,104,218

T A B L E III—BUDGET R E C E I P T S A N D OUTLAYS—Continued (In
This Month
OUTLAYS--Continued

ipartment of the Treasury:
Office of the Secretary:
Public enterprise funds

Other

f

Outlays

Total—Bureau of Government Financial
Operations
Bureau of Alcohol, Tobacco and Firearms
United States Customs Service:
Salaries and expenses
Bureau of Engraving and Printing
Bureau of the Mint
Bureau of the Public Debt
Internal Revenue Service:
Federal tax lien revolving fund
Salaries and expenses
Accounts, collection and taxpayer service....
Interest on refunds of taxes
Payments to Puerto Rico for taxes collected...
Total—Internal Revenue Service
lunited States Secret Service
lOffice of the Comptroller of the Currency
•Interest on the public debt (accrual basis):

Total—Interest on the public debt

Total—Department of the Treasury

footnotes on page 3.

Outlays

Applicable
Receipts

Net
Outlays

Outlays

Applicable
Receipts

$504

Net
Outlays

-$509
19,691

-$3,034
27,426

-$6
19,691

1
126,785
179,332
8,031
210
8,333

1
126,785
179,332
8,031
210
8,333

10
88,678
110,899
6,091
413

88,678
110,899
6,091

1,678,074
164

1,678,074
1,714

1,678,074
1,714

2,483

2,483

1,808,909

1,808,909

2,002,481

2,002,481

208,573

208,573

10,631

10,631

94,828

94,828

78,822

78,822

31,302
11,186
-2,786
-1,468
9,490

31,302
11,186
-2,786
-1,468
9,490

298,539
183,329
-4,358
35,421
100,222

298,539
183,329
-4,358
35,421
100,222

224,792
105,371
1,519
22,235
75,909

224,792
105,371
1,519
22,235
75,909

-24
4,853
80,096
91,535
16,385
11,278

495
42,825
731,096
827,859
235,628
121,519

380

114
42,825
731,096
827,859
235,628
121,519

320
35,815
585,976
651,888
220,243
101,484

311

-$232
2,595

$90
27,426

21,805
107,055
1,737
74

21,805
107,055
1,737
74

1,678,074
164

$232

$3,124

}

10

10

413

9

43
4,853
80,096
91,535
16,385
11,278

67

204,189

67

204,122

1,959,421

380

1,959,041

1,595,726

311

1,595,415

391

8,930
7,323

85,775
65,458

57,654

85,775
7,804

68,041
47,577

52,052

68,041
-4,475

2,167,477
597,482

2,167,477
597,482

25,165,328
7,499,680

25,165,328
7,499,680

22,898,573
6,420,360

22,898,573
6,420,360

2,764,959

2,764,959

32,665,008

32,665,008

29,318,933

29,318,933

4,770
-31,176
-66,299
-186,573

6,137,917

6,105,921

-1,344,941

6,137,917
-563,581
-504,727
-1,344,941

-1,250,661

4,575,683

42,306,616

41,177,149

36,622,446

8,930
7,713

4,770
proprietary receipts from the public
Receipts fr'om Off-budget Federal agencies
Intrabudgetary transactions

Comparable Period Prior Fiscal Year

Current Fiscal Year to Date
Net
Outlays

$<£, uuo

„

Bureau of Government Financial Operations:"3
Check forgery insurance fund *....
Salaries and expenses ....
Claims, judgements, and relief acts
Interest on uninvested funds ....
Payment of Government losses in shipment
Eisenhower College grants
Special payments to recipients of certain retirement
and survivor benefits
Other

Applicable
Receipts

thousands)

-186,573
4,673,849

31,176
66,299
98,166

563,581
504,727
1,129,466

35,815
585,976
651,888
220,243
101,484

371,338
205,489

6,105,921
-371,338
-205,489
-1,250,661

629,695

35,992,751

TABLE HI—BUDGET RECEIPTS AND OUTLAYS—Continued (In thousands)
This Month
Classification of
OUTLAYS—Continued
Energy Research and Development Administration^
Environmental Protection Agency:
Revolving fund for certification and other services
Research and development
Abatement and control
Construction grants
Other
Proprietary receipts from the public
Total--Environmental Protection Agency
General Services Administration:
Real property activities
Personal property activities:
Intragovernmental funds
Federal supply service, operating expenses
Records activities
Automated data and telecommunications activities:
Intragovernmental funds
,
Other
Property management and disposal activities
Preparedness Activities
General activities:
Public enterprise funds
Intragovernmental funds
Other
Proprietary receipts from the public:
Stockpile receipts
Other
Intrabudgetary transaction
Total--General Services Administration
National Aeronautics and Space Administration:
Research and development
Construction of facilities
Research and program management
Other
Proprietary receipts from the public
Total—National Aeronautics and Space
Administration
Veterans Administration:
Public enterprise funds:
Loan guaranty revolving fund
Direct loan revolving fund
^Veterans special life
Education loan fund
• Other
Compensation and pensions
Readjustment benefits
Medical care
Medical and prosthetic research
See footnotes on page 3.

Outlays

Applicable
Receipts

Comparable Period Prior Fiscal Year

Current Fiscal Year to Date
Net
Outlays

Outlays

Applicable
Receipts

Net
Outlays

Outlays

Applicable
Receipts

Net
Outlays

$382,432

$125

$382,307

,211,574

$13,375

3,198,199

!,370,123

r,921

$2,362,202

(*)
12,703
26,819
264,148
32,497

126

405
166,608
265,349
1,937,575
161,408

651

506

204

2,531,346

883

-246
166,608
265,349
1,937,575
161,408
-232
2,530,463

693
118,496
193,371
1,553,421
166,892

336,167

-126
12,703
26,819
264,148
32,497
-78
335,964

2,032,873

187
118,496
193,371
1,553,421
166,892
-268
2,032,100

42,228

42,228

145,724

145,724

830,469

830,469

-732
12,646
5,642

-732
12,646
4,895

8,112
151,552
60,290

5,901

8,112
151,552
54,389

30,466
104,945
45,374

5,700

30,466
104,945
39,674

9,271
795
-280
1,654

9,271
795
-280
1,654

-6,283
7,020
4,143
8,257

342

-6,283
7,020
4,143
7,915

7,985
6,606
18,992
8,398

30

7,985
6,606
18,992
8,368

80
6,705

-1,065
831
58,676

5

80
6,705

78

747

23

108,312
8,652

-11,872

117,711

-43,005

426,473

-119

105,030
10,543
69,303
231
119

2,420,387
85,307
760,797
3,931

185,107

-119

185,226

35,697
8,018

18,049
12,763

383
28,337
645,983
348,556
363,801
9,712

14
40,498

74,706
105,030
10,543
69,303
231

1,087

831
58,676

-108,312
-8,652
-3,302

-3,302

232

989,520
53,676

-989,520
-53,676
-11,872

268
773

965
1,141
5,918

-959
1,141
5,918

1,282,161
40,944

-1,282,161
-40,944
-6,332

1,329,799

-275,831

5,355

2,421,552
75,127
759,537
1,445
-5,355

-6,332

1,050,527

-624,054

1,053,968

3,714

2,420,387
85,307
760,797
3,931
-3,714

2,421,552
75,127
759,537
1,445

3,270,422

3,714

3,266,708

3,257,661

5,355

3,252,305

17,648
-4,745

420,438
108,064

348,883
149,511

71,555
-41,447

455,410
93,726

390,808
193,114

64,602
-99,388

369
-12,161
645,983
348,556
363,801
9,712

l',448
273,991
7,580,717
4,591,079
3,405,053
93,196

46
305,138

1,402
-31,147
7,580,717
4,591,079
3,405,053
93,196

208,509
6,633,219
3,248,899
2,789,001
77,696

241,139

-32,630
6,633,219
3,248,899
2,789,001
77,696

T A B L E III—BUDGET R E C E I P T S A N D OUTLAYS—Continued (In thousands)
Classification of
OUTLAYS—Continued
«rans Administration—Continued
Jeneral operating expenses
nsurance funds:
Government life
National service life
".".*.".".*.*.*.*.*.*.".".".".'
Veterans special life insurance fund
)ther
\
'roprietary receipts from the public:
Government life insurance fund
National service life insurance fund
Other.
'//[
htrabudgetary transactions:
Payments to veterans life insurance funds:
Government life insurance fund
National service life insurance fund
'.'.'.'.
Total—Veterans Administration
lependent agencies:
Action
A r m s Control and Disarmament Agency! !!!!!!!*!!!
Board for International Broadcasting
Civil Aeronautics Board:
Payments to air carriers
Salaries and expenses
]
Proprietary receipts from the public
!.!!!
Civil Service Commission:
Civil service retirement and disability fund
Payment to civil service retirement and disability
fund
Government payment for annuitants, employees
health benefits
Employees health benefits fund.
[
Employees life insurance fund
Retired employees health benefits fund
Other
Proprietary receipts from the public
Intrabudgetary transactions:
Civil service retirement and disability fund:
Receipts transferred to foreign service
retirement and disability fund
General fund contributions
Total—Civil Service Commission
Commission on Civil Rights
Community Services Administration
Consumer Product Safety Commission
Corporation for Public Broadcasting
District of Columbia:
Federal payment
Loans and repayable advances
Emergency Loan Guarantee Board.
Equal Employment Opportunity Commission
• footnotes on page 3.

This Month
Outlays

Applicable
Receipts

$42,897
5,188
43,276
1,869
11,770

(*)
-152
1,545,335

Net
Outlays

Outlays

$42,897

$444,566

$672
7,370
14,532
11
651
43,491
234

4,516
35,906
-12,662
11,760
-651
-43,491
-234

95,078
825,311
27,561
161,032

-27
-2,074

138,286

(*)
-152
1,407,049

16,204
3,119
16
5,165
1,370

16,200
3,119
16
5,165
1,370
-5
629,773

629,773

Comparable Period Prior Fiscal Year

Current Fiscal Year to Date
Applicable
Receipts

$9,383
94,551
68,818
172
6,830
464,948
2,145

Net
Outlays

Outlays

$444,566

$336,976

85,695
730,760
-41,257
160,859
-6,830
-464,948
-2,145

86,967
710,706
23,037
138,737

-27
-2,074

-45
-2,138

$9,240
87,823
64,127
160
7,301
468,036
2,081

77,72
622,88
-41,09
138,57
-7,30
-468,03!
-2,08!
-4!
-2,13c

16,575,008

14,800,701

1,463,828

13,336,871

178,397
9,726
49,858
63,581
17,437

147
(*)

166,943
8,894
50,674
73,362
15,297

195
(*)

7,071,144

178,250
9,726
49,858
63,581
17,437
-134
7,071,144

5,668,972

166,746
8,895
50,674
73,362
15,297
-146
5,668,972
2,384,313

134

3,792,282

3,792,282

2,384,313

51,000
141,318
-41,207
1,163
8,390

51,000
-55,721
-98,666
1,219
8,390
-1

251,000
1,711,895
304,605
17,687
102,584

251,000
-63,079
-303,660
5,760
102,584
-85

163,114
1,425,169
360,240
17,311
88,583

-400
-3,791,292

-27,427
-3,792,282

-27,427
-3,792,282

-15,279
-2,384,236

254,443

535,594

9,431,488

7,036,236

7,708,188

739
54,942
4,806

60
(*)

739
54,882
4,806

5,000
20,072
18
5,463

25,000
111
-4

5,000
-4,928
-93
5,467

6,920
543,589
34,213
62,000
231,800
232,938
-5,570
56,131

6,920
543,351
34,211
62,000
231,800
197,512
-7,144
56,120

6,056
680,813
18,711
47,750
191,533
153,543
-2,863
42,103

790,038

$336,97

1,450,426

3,791,292

-400
-3,791,292

Net
Outlays

18,025,433

3,791,292
197,039
57,460
-56

Applicable
Receipts

1,774,974
608,265
11,928
85

2,395,252
238
2

35,425
1,574
10

146

1,487,290
515,768
12,041
730

163,114
-62,121
-155,528
5,271
88,583
-730
-15,279
-2,384,236

2,015,828
338
2

12,943
2,006
5

5,692,360
6,056
680,474
18,709
47,750
191,533
140,599
-4,868
42,098

<0

10

o
TABLE III--BUDGET RECEIPTS AND OUTLAYS-Continued (In thousands)
This Month
Classification of
O U T L A Y S - -Continued

Independent agencies--Continued
Federal Communications Commission
Federal Deposit Insurance Corporation
Federal Energy Administration
Federal H o m e Loan Bank Board:
Public enterprise funds:
Federal Savings and Loan Insurance Corp. Fund .
Federal H o m e Loan Bank Board Revolving Fund..
Interest adjustment payments
Federal Maritime Commission
Federal Mediation and Conciliation Service
Federal Power Commission
Federal Trade Commission
Foreign Claims Settlement Commission
Historical and Memorial Commissions
Indian Claims Commission
Intergovernmental agencies:
Washington Metropolitan Area Transit Authority .
Other
International Trade Commission
Interstate C o m m e r c e Commission
National Capital Planning Commission
,
National Credit Union Administration
,
National Foundation on the Arts and the Humanities..
National Labor Relations Board
National Science Foundation
National Transportation Safety Board
Nuclear Regulatory Commission
Occupational Safety and Health Review Commission..
Postal Service:
Payment to the postal service fund
Railroad Retirement Board:
Payment to railroad retirement trust funds
Railroad retirement accounts:
Administrative expenses
Benefit payments, etc
Interest on refunds of taxes
Payment to railroad unemployment ins. account.
Proprietary receipts from the public
Intrabudgetary transactions:
Railroad retirement accounts:
Payment to railroad retirement trust funds...
Payment from railroad retirement supplemental
receipts transferred to railroad unemployment
insurance account
Interest transferred to federal hospital
insurance trust fund
Total—Railroad Retirement Board
Securities and Exchange Commission
Selective Service System
See footnotes on page 3.

Outlays

$3,631
40,164
6,929
6,131
101,393
148
697
1,679
3,340
4,074
109
2,084
119
11,628
281
982
3,617
276
1,393
17,464
4,458
51,804
1,390
20,659
585
46,456

Applicable
Receipts

36,843

16,033
3,244
2
(*)
-265
3
49
(*)

119
2
(*)
1,111
1
16
(*)
3
2

2,336
296,889
2

Current Fiscal Year to Date
Net
Outlays

Applicable
Receipts

$47,963
553,878
120,697

$25
961,559
26

$47,938
-407,682
120,671

-9,902
98,149
148
694
1,679
3,605
4,071
109
2,035
119
11,628
162
982
3,615
276
282
17,464
4,442
51,804
1,387
20,657
585
46,456

-35,669
1,308,445
2,478
7,250
15,498
34,424
38,732
1,272
17,764
1,243
175,306
3,807
8,296
46,148
1,742
19,591
128,084
61,100
662,372
8,629
52,792
5,292
1,877,112

279,961
71,093

-315,630
1,237,352
2,478
7,229
15,497
34,407
38,703
1,272
11,581
1,243
175,306
2,357
8,296
43,962
1,742
-13,537
128,082
60,889
662,165
8,617
52,791
5,292
1,877,112

22
1
17
29

'"h',m
(*)
1,450
2,186
(*)
33,128
2
211
207
13
2

3,439
3,486

(*)
(*)

Applicable
Receipts

Net
Outlays

$38,146
474,330
29,580

$22
698,063

$38,124
-223,733
29,580

8,380
39,455
2,707
6,488
11,783
26,669
32,359
5,630
10,527
1,161
170,453
4,070
7,079
38,097
1,510
12,300
96,329
55,312
651,630
8,171
4,596

385,455
34,785

-377,075
4,670
2,707
6,475
11,782
26,656
32,339
5,630
5,241
1,161
170,453
2,855
7,079
37,731
1,509
-12,615
96,324
55,073
651,298
8,171
4,596

13
1
13
20
5,286
(*)
1,215
367
(*)
24,914
5
239
331

1,698,000

1,698,000

3,516

22,478

22,478

25,231
3,052,039
18

25,231
3,052,039
18

21,603
2,648,544
15
5,067

21,603
2,648,544
15
5,067
(*)

(*)

(*)

'(*)

(*)

-3,516

5,748

(*)

Outlays

3

3,516

-3,516

299,226

Net
Outlays

$3,630
3,322
6,929

2,336
296,889
2

(*)

Outlays

Comparable Period Prior Fiscal Year

5,748

-22,478

-22,478

-5,067

-5,067

2,939

2,939

299,226

3,083,037

(*)

3,083,036

2,673,100

(*)

2,673,100

3,438
3,485

44,419
48,465

23
3

44,395
48,463

34,537
59,525

21
22

34,516
59,503

T A B L E H I — B U D G E T R E C E I P T S A N D O U T L A Y S — C o n t i n u e d (In thousands)
This Month
Classification of
OUTLAYS—Continued
Independent agencies--Continued
Small Business Administration:
Public enterprise funds:
Business loan and investment fund
Disaster loan fund
Surety bond guarantees revolving fund
Lease guarantees revolving fund
Salaries and expenses
Proprietary receipts from the public
Intrabudgetary transactions
Total—Small Business Administration
Smithsonian Institution
Temporary Study Commissions
Tennessee Valley Authority:
Tennessee Valley Authority fund
Proprietary receipts from the public
Total--Tennessee Valley Authority

Outlays

,
,
,

United States Information Agency:
Salaries and expenses
Special international exhibitions
Other
Proprietary receipts from the public
Total--U.S. Information Agency
United States Railway Association
Water Resources Council
Other independent agencies
Total--Independent agencies
Undistributed offsetting receipts:
Federal employer contributions to retirement and
social insurance funds:
Legislative Branch:
United States Tax Court:
Tax court judges survivors annuity fund
The Judiciary.
Judicial survivors annuity fund
Department of Health, Education, and Welfare:
Federal old-age and survivors insurance trust
fund
Federal disability insurance trust fund
Federal hospital insurance trust fund
Department of State:
Foreign service retirement and disability fund ...
Other independ( nt agencies:
Civil Service Commission:
Civil service retirement and disability fund....
Receipts from off-budget Federal agencies:
Other independent agencies:
Civil Service Commission:
Civil Service Retirement and Disability Fund
Subtotal
See footnotes on page 3.

$81,776
38,302
819
320
-3,621

Applicable
Receipts

Comparable Period Prior Fiscal Year

Current Fiscal Year to Date
Net
Outlays

Applicable
Receipts

Outlays

Net
Outlays

$574,613
641,242

$311,073
175,624

$263,540
465,618

7,417
21,909

'"*5,'326

2,091
21,909
-11

117,597

47,448

70,149

1,113,249

495,355

1,245,181

492,034

753,147

9,140
1,451

10
88

9,131
1,363

103,132
14,199

29
588

103,103
13,610

84,288
7,181

22
550

84,265
6,631

245,824

139,736
3

106,088
-3

1,976,757

1,209,502
30

767,255
-30

1,265,175

864,038
32

401,137
-32

245,824

139,739

106,085

1,976,757

1,209,532

767,225

1,265,175

864,070

401,105

39,675
610
169
-46
40,408

231,431
7,096
1,742

208,122
5,136
1,639

240,269

736

231,431
7,096
1,742
-736
239,533

214,897

521

208,122
5,136
1,639
-521
214,377

3,200
1,306
1,791
1,441,240

22,700
10,628
24,592
22,758,196

1,213
6,646

22,700
9,415
17,946

1,200
7,694
20,907

906
5,801

1,200
6,788
15,106

5,503,023

17,255,173

18,209,448

4,546,139

13,663,309

-30

-30

-30

-751

-751

39,675
610
169
40,454
3,200
1,322
3,485
1,967,065

i

46
46
16
1,693
525,825

$717,773
354,176
16,392
3,414
21,493

Applicable
Receipts

Outlays

$404,146
176,911
13,554
2,307
21,493
-517
(*)
617,893

129,617
17,481
293
56

$52,159
20,821
527
264
-3,621
-1

Net
Outlays

-1

(*)

$313,628
177,265
2,838
1,107

hii

736

-75,000
-9,000
-18,000
-1,159

-75,000
-9,000
-18,000
-1,159

-810,000
-106,000
-166,000
-12,598

-810,000
-106,000
-166,000

-194,189

-194,189

-1,918,235

-1,918,235

-243,247

-243,247

-966,591

-966,591

-540,596

-540,596

-3,980,206

-3,980,206

-12,598

ii

521

-30

-751

-751

-677,000
-87,000
-147,000
-9,351

-677,000
-87,000
-147,000
-9,351

-1,756,301

-1,756,301

-642,031

-642,031

-3,319,464

-3,319,464

•

^

10
IV)

TABLE MI-BUDGET RECEIPTS A N D OUTLAYS-Continued (In thousands)
This Month
Classification of
OUTLAYS--Continued

Outlays

Undistributed offsetting receipts--Continued
Interest on certain Government accounts:
Interest credited to certain Government accounts:
The Judiciary:
Judicial survivors annuity fund
Department of Defense:
Civil:
Soldiers' and Airmen's H o m e permanent fund
Department of Health, Education, and Welfare:
Federal old-age and survivors ins. trust fund..
Federal disability insurance trust fund
Federal hospital insurance trust fund
Federal supplementary medical ins. trust fund,,
Department of Labor:
Unemployment trust fund
Department of State:
Foreign service retirement and disability fund.
Department of Transportation:
Airport and airway trust fund
Highway trust fund
Veterans Administration:
Government life insurance fund
National service life insurance fund
Civil Service Commission:
Civil service retirement and disability fund....
Railroad Retirement Board:
Railroad retirement accounts
Other
Subtotal.
Adjustment of interest on public debt issues to
Rents
and royalties
on thebasis
outer continental shelf
convert
to the accrual
lands

Applicable
Receipts

Net
Outlays

-1,628

-144,287

Outlays

Applicable
Receipts

Net
Outlays

Net ^^
Outlays

Applicable
Receipts

^v.

Outlays

-$9

-$586

-$586

-$428

-$428

-1,628

-6,759

-6,759 i

-4,112

-4,112

|
1
|
!

-2,296,332
-511,841
-607,134
-104,403

-144,287 ;

-639,167

1,003,255
-236,298
-298,928
-44,791

-1,003,255
-236,298
-298,928
-44,791

Comparable Period Prior Fiscal Year

Current Fiscal Year to Date

N ^

-2,296,332 l
-511,8411
-607,134
-104,403

-2,039,730
-479,022
-408,542
-77,243

-2,039,730
-479,022
-408,542
-77,243

-639,167

-649,666

-649,666

-7,162

-3,752

-3,752

-3,583

-7,162

-57,398
-296,483

-57,398
-296,483

-95,957
-585,638

-95,957 I
-585,638 1

-28,107
-414,574

-28,107
-414,574

-15,027
-175,567

-15,027
-175,5671

-30,823
-368,048

-30,823
-368,048

-31,098
-338,258

-31,098
-338,258

-963,021

-963,021

-2,135,524

-2,135,524

-1,837,601

-1,837,601

-110,680
-5,387

-110,680
-5,3871

-274,453
-26,175

-274,453
-26,175

-257,039
-8,632

-257,039
-8,632

2,591,500

2,591,500'
-7,690,002

-7,690,002

-6,577,804

-6,577,804

-3,583

-764,840!

-764,840

-295,420

$295,420

5,427,965

-2,427,965

i,748,394

-6,748,394

Total--Undistributed offsetting receipts

-1,305,436

295,420 i -1,600,857

-11,670,208

2,427,965

-14,098,173

-9,897,268

6,748,394

-16,645,662

Total outlays

33,676,874

3,381,302 i 30,295,572

359,758,034

35,157,074

324,600,960

302,621,804

34,229,821

268,391,983

TOTAL BUDGET

(Net Totals)

(Net Totals)

(Net Totals)

Receipts (+)

31,816,664

280,996,840

264,932,401

Outlays (-)
Budget surplus (+) or deficit (-)

MEMORANDUM
Receipts offset against outlays (In thousands)
Current
Fiscal Year
to Date
Proprietary receipts $11,266,358
Receipts from off-budget Federal agencies
Intrabudgetary transactions
Total receints off«=«»* orr?i„ct ™,tio,rc 40-159.926

Comparable Period
Prior Fiscal Year
$14,241,414
205,489
23,870,115

504,727
28,388,842
i". r, H £i

38.317.019

TABLE IV-MEANS OF FINANCING (In thousands)
Classification

(Assets and Liabilities
Directly Related to the Budget)

23

Net Transactions
(-) denotes net reduction of either
liability or assets accounts
Fiscal Year to Date

Account Balances
Current Fiscal Year
Beginning of

This Month
This Year Prior Year

This Year

This Month This Month

LIABILITY A C C O U N T S
Borrowing from the public:
Public debt securities, issued under general
financing authorities:
Obligations of the United States, issued by:

$5,030,269 $58,944,447 $16,918,210
9,000
-460

Deduct:
Accrued interest receivable on public debt securities
Total accrued interest payable to the public
Deposit funds:

Miscellaneous liability accounts (Includes checks

$474,234,816 $528,148,994 $533,179,263
9,460
9,000
474,234,816 528,158,454 533,188,263

5,029,809

58,953,447

16,918,210

-55,203

-1,069,141

903,209

4,974,606

57,884,306

17,821,420

486,247,088 539,156,788 544,131,393

4,407,351

7,031,178

14,812,849

140,193,922 142,817,748 147,225,099

567,254

50,853,128

3,008,571

346,053,166 396,339,040 396,906,294

-2,077,142

398,631

46,613

2,920,613

5,396,385

3,319,243

-2,617,914

-26,414

357,447

357,447

2,948,947

331,033

540,772

425,045

-310,834

2,563,166

2,447,438

2,988,210

-23,867
-320,992

68,969
510,473

276,733
-296,062

2,767,339
3,357,391

2,860,174
4,188,855

2,836,308
3,867,863

-3,822,315

-366,117

313,251

7,813,617

11,269,815

7,447,500

-3,059,147

51,491,497

2,991,659

-949,038

-1,570,086

-3,416,725

9,159,226

8,538,179

7,589,140

-20,344

222,925
-100,000

245,288

2,194,738
-400,000

2,438,007
-500,000

2,417,663
-500,000

-20,344

122,925

245,288

1,794,738

1,938,007

1,917,663

6,700,000
1,382,534
-825,000
-6,167,242

6,700,000
1,382,534

6,700,000
1,583,970

-21,000

201,436
825,000
248,000

808,251

-5,898,242

-5,919,242

-153,639

-153,639

26,797

1,120,797

524,759

1,090,292

2,184,292

2,211,088

48,982

646,532

119,130

3,549,185

4,146,735

4,195,717

-893,604

320,167

-2,527,548

15,593,442

16,807,2121

-1,251,139

-1,329,763

1,281,389

-2,144,743

-1,009,597

-1,246,159

-914,404 +52,501,093

+4,237,818

-8,896,973

-778,236

-1,521,092 +43,604,120

+3,459,583

Agency securities, issued under special financing
authorities (See Schedule B. For other agency

Deduct:
Federal securities held as investments of

12

12,012,272

10,943,131

10,998,334

362,554,679 417,105,322 414,046,175

A S S E T A C C O U N T S (Deduct)
ash and monetary assets:13
Special drawing rights:
SDR certificates issued to Federal Reserve Banks

Gold tranche drawing rights:
U.S. subscription to International Monetary Fund:
Maintenance of value adjustments (see note on page 24)...
Receivable/Payable (-) for U.S. currency valuation

Transactions not applied to current year's surplus or deficit
Total budget financing [Financing of deficit (+) or
, disposition of surplus (-)]

See footnotes on page 3.

201,436
14

-606,688

-283,492

-153,639

15,913,609

4,037,74911

2.786,610
4,116,373
L
(
!
20,844,961 18,700.219
19,709,815
!
lj
1
+342,844,864 +396,260,361 +395.345.957
-8,896,973

-8,290,285
i

+342.844,864 +387,970,0761+386.448.984
-A-.
;

24

•m

TABLE IV-SCHEDULE A-ANALYSIS OF CHANGE IN EXCESS OF LIABILITIES (In thousands)
Fiscal Year to Date
This
Month

Classification

Excess of liabilities beginning of period:
Based on composition of unified budget in preceding period
Adjustments during current fiscal year for changes in
composition of unified budget
Excess of liabilities beginning of period (current basis)
,
Budget surplus (-) or deficit:
Based on composition of unified budget in prior fiscal year ,
Adjustments during current fiscal year for changes in
composition of unified budget
Budget surplus (-) or deficit (Table HI).
Transactions not applied to current year's surplus or deficit:
Seigniorage
Increment on gold
Net gain (-)/loss for U.S. currency valuation adjustment
(see note below)
Conversion of interest receipts of government accounts to
an accrual basis
Off-budget Federal agencies:
Export-Import Bank of the United States
Pension Benefit Guaranty Corporation
Postal Service
Rural electrification and telephone revolving fund
Rural telephone bank
Housing
for the elderly
handicapped
fundyear's surplus
Total--transactions
not or
applied
to current
Federal
Financing Bank
or deficit
Excess of liabilities close of period.

This Year

Prior Year

$396,260,361 $342,844,864 $338,607,046

396,260,361

342,844,864

338,607,046

-1,521,092

43,604,120

3,459,583

-1,521,092

43,604,120

3,459,583

-64,469

-626,373

-320,707
-1,219,103

(*)
-47,797

-47,797

26,414

26,414

36,612
-119
462,227
54,821
14,284
-1,137
125,852

1,503,701
-34,047
1,112,248
476,670
109,701
-12,928
6,389,383

1,228,276

606,688

8,896,973

778,236

395,345,957

395,345,957

342,844,864

-357,447

773,277
484,402
87,537
102,000

See footnotes on page 3.
Note:

Beginning with this issue, the U. S. subscription to International Monetary Fund of $8,083 billion is reflected on two lines—Direct quota payments
and Maintenance of value adjustments (IMF currency valuation adjustments and par value modifications). The balance of $6. 7 billion represents th(;
U. S. subscription of $6.7 billion SDR's when S D R 1 = $1. 00. The balance of $1.383 billion represents adjustments reported in May 1972 and
October 1973 in the amounts of $574,283,000 and $808,251,000 respectively, for the Par Value Modification Act, as amended.
Includes the following currency valuation adjustments for fiscal year 1975; future adjustments will be reported monthly:
^
MOV adjustments Receivable/payable (-) Gain(-)/loss MOV adjustments Receivable/payable (-) Gain(-)/los1974-July
Aug.
Sept.
Oct.
Nov.
Dec.

-22,703
-123,021
16,931
53,153
79, 454
116,796

19,798
102, 409
-13,732
-41,632
-61,776
-90,499

2,905
20,612
-3,199
-11,521
-17,678
-26,297

Jun.

97,483
143,925
-86,518
-40,383
36,028
-69,709

-75,168
-108,241
63,541
29,848
-26,779
48,592

Totals

201,436

-153,639

197 5-Jan.
Feb.
Mar.
Apr.

May

TABLE IV-SCHEDULE B-AGENCY SECURITIES, ISSUED UNDER SPECIAL
FINANCING AUTHORITIES (In thousands)

Classification

Agency securities, issued under special financing authorities:
Obligations of the United States, issued by:
Export-Import Bank
Obligations guaranteed by the United States, issued by:
Department of Defense:
Family Housing Mortgages
4
Department of Housing and Urban Development:
Federal Housing Administration
Department of Transportation:
Coast Guard:
Family Housing Mortgages
Obligations not guaranteed by the United States, issued by:
Department of Defense:
Homeowners Assistance Mortgages . v
Department of Housing and Urban Development:
Government National Mortgage Association
Department of the Treasury:
Federal F a r m Mortgage Corporation Liquidation Fund .
Independent agencies:
Federal "Home Loan Bank Board:
Federal H o m e Loan Bank Board Revolving Fund
Total agencyLoan
securities.
Homeowners'
Corporation
Postal Service
Tennessee Valley Authority

Net Transactions
(-) denotes net reduction of
liability accounts

Account Balances
Current Fiscal Year

-22,315 -:
-35,684
22,977
10,535 :
-9,249
21,117 » -47,797 I ^

TABLE IV-SCHEDULE C (MEMORANDUM)-AGENCY BORROWING FINANCED THROUGH
ISSUE OF PUBLIC DEBT SECURITIES (In thousands)
Transactions
Classification
Fiscal Year to Date
This Month
This Year

Prior Year

Account Balances
Current Fiscal Year
Beginning of
This Year

This Month

25

Close of
This Month

Borrowing from the Treasury:
Agency for International Development
Commodity Credit Corporation
Export-Import Bank of the United States
Federal Financing Bank
Federal H o m e Loan Bank Board
Federal Housing Administration:
General insurance fund
Special risk insurance fund
Government National Mortgage Association:
Emergency H o m e Purchase Assistance fund
Management and liquidating functions
Special
assistance functions
Rural
Electrification
Administration
Department
of Health,
Rural Telephone
Bank Education, and Welfare:'.'.'.'.
Commissioner
of Education,
student
loan insurance
Saint
Lawrence Seaway
Development
Corporation........
fund of Agriculture, F a r m e r s H o m e Administration:
Secretary
Rural housing insurance fund.
Agricultural credit insurance fund
Rural development insurance fund
Secretary of the Department of Housing and Urban
Development:
College housing loans
Low-rent public housing
National flood insurance fund
Public facility loans
Urban renewal fund
Secretary of the Interior:
Bureau of Mines, helium fund
Secretary of Transportation:
Washington Metropolitan A r e a Transit Authority.
,
Smithsonian Institution:
John F. Kennedy Center parking facilities
,
Tennessee Valley Authority
,
United States Information Agency
'/..,
Veterans Administration:
Veterans
direct loan
,
Total Borrowing
fromprogram
the Treasury .
Defense Production Act of 1950, as amended:
Borrowing
the Federal
Financing Bank:
General from
Services
Administration
Secretary
of Agriculture
'..999999.'.
Postal
Service
SecretaryValley
of the Authority.".".'
Interior, Defense
Tennessee
.*.''.'.'..Minerals
" .*."."
Exploration Bank
Administration
Export-Import
of the United States
D.C.Total
Commissioners:
sinking
fund,Bank.
Armory
Borrowing fromStadium
the Federal
Financing
Board, D.C
.
. ...
Total Agency Borrowing financed through
issues of Public Debt Securities

-$94,287
141,096
53,353
351,736
98,500
202,268
75,000
70,400
-15,590
-109,440

15,700
-950,000
-138,711

-$94,287
-3,561,667
-2,249,825
12,864,003
1,247,488
730,268
485,000
504,680
-16,710
1,791,560
445,772
82,648
-1,200
-925,000
*-i38*7ii

16,045
25,000

-$46,491
-2,256,284
569,238
602,000

$327,311
8,608,036
2,456,902
602,000

476,000
345,000

1,307,000
1,155,000

-5,320
86,020

74,900
3,058,435

-15,000
400,694
49,422
-2,200
925,000

"i6,*666

42,833
20,000

$327,311
4,905,273
153,724
13,114,267
1,148,988
1,835,000
1,565,000
434,280 i
73,780
4,959,435

6,963,336
49,422
121,076
1,480,718
676,000
388,711

7,409,108
116,370
119,876
1,505,718
676,000
388,711

2,811,000

2,811,000

"*53,'879
360,500
800,000
251,650

"**69J924
385,500
800,000
251,650

20,400
100,000
22,114
1,730,078
1,877,500
98,608
38,800

20,400
150,000
22,114
1,730,078

831

416
44.973.923

$233,024
5,046,369
207,077
13,466,003
1,247,488
2,037,268
1,640,000

-4,505
50,000

-1,877,500
-98,608
-38,800

867

416
-299.559

225,000
225.000
-74,559

9,240.156

1.197.274

1,000,000
1,435,000
4,049,400
6.484.400

500,000

500,000

500.000

500.000

1,697,274

35,934,207

15,724,556

35.434.207

1,500,000
1,210,000
4,049,400
6,759.400
51,733,323

Note: Includes only amounts loaned to Federal Agencies in lieu of Agency Debt issuance and excludes Federal Financing Bank purchase of loans
made or guaranteed by Federal Agencies. T h e Federal Financing Bank borrows from Treasury and issues its o w n securities and in turn
may loan these funds to Agencies in lieu of Agencies borrowing directly through Treasury or issuing their own securities.

TTT

26

TABLE IV-SCHEDULE D--INVESTMENTS OF GOVERNMENT ACCOUNTS
IN FEDERAL SECURITIES (In thousands)
Securities Held as Investments
Current Fiscal Year

Net Purchases or Sales (-)
Classification

This Month

Federal Funds:
Department of Agriculture:
Agency securities
Department of Commerce
Department of Housing and Urban Development:
Federal Housing Administration:
Federal housing administration fund:
Public debt securities
Agency securities
Government National Mortgage Association:
Special assistance function fund:
Agency securities
Management and liquidating functions fund:
Agency securities
Guarantees Of Mortgage-Backed Securities:
Public debt securities
Agency securities.
Participation sales fund:
Public debt securities
Agency securities
Housing Management:
Community disposal operations fund:
Agency securities
Rental housing assistance fund
N e w Communities Administration:
N e w communities fund
Federal Insurance Administration:
National insurance development fund
Department of the Interior:
Bonneville Power Administration
Department of Treasury
Veterans Administration:
Veterans reopened insurance fund
Veterans special life insurance fund
Independent agencies:
Emergency Loan Guarantee Board
Federal Savings and Loan Insurance Corporation:
Public debt securities
Agency securities
National Credit Union Administration
Other
Total public debt securities
Total agency securities
Total Federal funds
Trust Funds:
Legislative Branch:
United States Tax Court
Library of Congress
The Judiciary:
Judicial Survivors Annuity Fund
Department of Agriculture
Department of Commerce ,
Department of Defense ,
Department of Health, Education, and Welfare:
Federal old-age and survivors insurance trust fund:
Public debt securities
,
Agency securities
,
Federal disability insurance trust fund
,
Federal hospital insurance trust fund:
Public debt securities
,
Agency securities
Federal supplementary medical insurance trust fund,
Other
,

Beginning of

Fiscal Year to Date
This Month

Prior Year

This Year

This Month

Close of
This Month

-$6,000

-$6,000

$47,215

$41,215

$41,215

16,012

14,800

62,911

78,923

78,923

1,406,484
191,222

-$242
(*)

199,657
-65

68,450
-5,710

1,206,827
191,288

1,406,726
191,222

111

6,472

-5,731

84,802

91,164

-142

-4,208

-916

47,120

43,054

42,912

1,463
-664

7,345
2,378

7,876

15,958

21,840
3,043

23,303 '
2,378

28,807

249,018
-25,925

191,193
-7,455

1,068,309
112,670

1,288,520
86,745

1,317,327
86,745

154

14,737

11,001

388
19,572

388
34,155

388
34,309

91,274 ,

-1,325

-6,500

3,640

11,978

6,803

5,478

-12,300

-7,800

4,800

85,786

90,286

77,986

^165,564

10,815

176,379

10,815

-1,146,861

-912,537

-570,156

2,363,945

2,598,269

1,451,408 i

11,054
12,083

32,798
41,586

31,322
37,937

284,315
390,575

306,059
420,078

75

7,232

4,755

9,070

16,227

317,113
432,161
16,302

37,410

3,284,343
141,950
40,769
170,630

3,589,989
141,950
53,373
200,235

3,599,854
141,977

16,168
-27,321

234,474
-25,811

9,014,988
625,432

10,287,862
598,780

9,031,156
598,111

-11,153

208,663

9,640,420

10,886,642

9,629,267

398

468

468
1,340

9,865
27
970
5,115

315,511
27
13,574
34,720

377,767

-1,256,706
-670
-1,257,376

13,680

70
-138

50
1,340

1,478

205,350

9,055

9,971

9,956

-91

942

453

508

-19

5

130

328

111

-207

-52

292

1,309

1,463

1,257

-541,720

2,175,159

2,216,641

*23ia08

"-36J822

"391^359

490,474

1,896,528

3,641,990

"^45', 003

"*i47i529

531,054
100

-15

901

55

-434

-217

907

37,162,264
555,000
8,194,588
7,814,355
50,000
1,230,685
182

39,879,143
555,000
7,926,658
9,220,409
50,000
1,423,217
182

39,337,423
555,000
8,157,766
9,710,883
50,000
1,378,214
182

TABLE IV-SCHEDULE D--INVESTMENTS OF GOVERNMENT ACCOUNTS
»N FEDERAL SECURITIES-Contlnued (In thousands)
Securities Held as Investments
Current Fiscal Year

Net Purchases or Sales (-)
Classification
This Month

Fiscal Year to Date
This Year

Trust Funds—Continued
Department of the Interior,
Department of Labor:
Unemployment trust fund
Other
Department of State:
Foreign service retirement and disability fund,
Other
Department of Transportation:
Airport and airway trust fund,
Highway trust fund
,
Other
Department of the Treasury....
General Service Administration
Veterans Administration:
Government life insurance fund
National service Ufe insurance fund:
Public debt securities
Agency securities
General Post Fund National H o m e s .,
Independent agencies:
Civil Service Commission:
Civil service retirement and disability fund:
Public debt securities
Agency securities
Employees health benefits fund
Employees life insurance fund
,
Retired employees health benefits fund
',
Federal Deposit Insurance Corporation
,
Railroad Retirement Board:
Public debt securities
,
Agency securities
[.]
Total public debt securities,
Total agency securities
Total trust funds.
Off-budget Federal agencies:
Postal Service:
Public debt securities
Agency securities
Rural Telephone Bank
Pension Benefit Guaranty Corporation*
Total public debt securities,
Total agency securities.
Total Off-budget Federal agencies,
Grand Total

$8,810
-785,463

$7,879
-4,937,917

27

. Prior Year

$1,151
1,164,643

Beginning of
This Year

This Month

Close of
This Month

$2,066

$1,135

$9,945

12,121,390
31

7,968,936
31

7,183,473
31

40,788

48,659
10

38,884
-90

103,446
100

111,317
110

152,105
110

142,932
455,693

1,058,309
1,936,620

877,839
2,049,152
-13

877,839
7,599,203
10

1,793,216
9,080,130
10

1,936,148
9,535,823
10

-7,246

-7,846

4,450

38,506

37,906

30,660

-525

-135

607

3,088

3,478

2,953

10,026

-47,145

-38,860

650,845

593,674

603,700

170,571

110,546

177,823

6,605,188
310,000
1,429

6,545,163
310,000
2,029

6,715,734
310,000
1,429

""-600

4,809,637

4,275,919

3,465,344

""42,'878
98,513
-2,937
-5,171

*63^38i
302,503
-7,000
404,284

""57 ,'144
154,044
-7,300
224,983

965,714

-290,345

-59,778

6,077,957

7,101,921

6,077,957

-413,436
205
-413,231

33,956,123
375,000
245,751
1,396,825
29,081
5,860,812

33,422,405
375,000
266,254
1,600,815
25,018
6,270,267

38,232,042
375,000
309,132
1,699,328
22,081
6,265,096

4,499,124
50,000

3,243,065
50,000

4,208,779
50,000

14,892,328

128,404,763
1,340,000

129,428,727
1,340,000

135,506,684
1,340,000

7,101,921

14,892,328

129,744,763

130,768,727

136,846,684

-71,541
-18,800
-3,629
34,379

-310,058
17,775
4,140

774,855
22,775
11,109

1,116,750
3,975
7,480
34,174

703,315
3,975
7,480
34,379

-40,791
-18,800

-305,918
17,775

785,964
22,775

1,158,404
3,975

745,174
3,975

-413,231

-59,591

-288,143

808,739

1,162,379

749,149

4,407,351

7,031,178

14,812,849

140,193,922

142,817,748

147,225,099

200

200

200

200

200

200

200

200

MEMORANDUM
Investments in securities of privately owned
Government-sponsored enterprises:
Milk market orders assessment fund
Total.
Note: Investments are in public debt securities unless otherwise noted.

28

n

TABLE V--COMPARATIVE STATEMENT OF BUDGET RECEIPTS AND OUTLAYS
BY MONTHS OF CURRENT FISCAL YEAR
(Figures a r e rounded in millions of dollars a n d m a y not a d d to totals)

Classification

July

Aug.

Sept.

Oct.

Nov.

Dec.

Jan.

Feb.

March

Fiscal
Year
To
Date

Comparable
Period
Prior
F.Y.

$16,065 $1,630 $13,123 122,386
5,093 1,174 9,578 40,621

118,95
38,62

April

May

June

RECEIPTS
Individual income taxes
Corporation income taxes
Social insurance taxes and
contributions:
Employment taxes and
contributions
Unemployment insurance ...
Contributions for other
insurance and retirement..
Excise taxes
Estate and gift taxes
Customs
Miscellaneous
Total—receipts this
year

iio,806
1, 485

110,485 $13,947 $10,590 $10,832 $10,799 $15,487 $7,747
778
6,268
1,188
828
797
5,647
1,206

$4,134
6,579

005
418

7,813
1,363

5,668
62

4,558
221

6,633
762

4,995
89

5,025
245

7,895
732

6,476
21

7,181
557

8,029
2,209

5,926 75,204
92
6,771

358
517
418
325
607

368
1,415
453
355
540

389
1,465
352
305
543

363
1,401
370
347
578

353
1,474
350
319
773

356
1,489
341
307
301

402
1,351
385
307
629

352
1,277
399
260
535

373
1,160
356
295
741

388
1,166
317
286
399

350
1,373
459
270
559

413 4,466
1,464 16,551
412
4,811
301
3,676
508
6,711

20,939 23,620

28,377

19,633

22,292 24,946

25,020 19,975

20,134

31,451 12,793 31,817 280,997

18.210

24,843

17,642

20,206

23,475

20.224

16,819

29,660

59
-1

61
53

Total-receipts prior year ....

21,365

21,990

19,240

31,259

68
18

42
16

60
18

1
4,05)
16,84
5,03l
3,33:
5,36!

m

264,93*
I

OUTLAYS
Legislative Branch.
The Judiciary
Executive Office of the
President
Funds appropriated to the
President:
International security
assistance
International development
assistance
Other
Department of Agriculture:
Foreign assistance, special
export programs and
Commodity Credit
Corporation
Other
Department of C o m m e r c e ....
Department of Defense:
Military:
Department of the A r m y . .
Department of the Navy...
Department of Air Force Defense agencies ........
Civil defense
Allowance undistributed ..
Total Military
Civil
Department of Health,
Education, and Welfare:
Social and Rehabilitation
Service
Federal old-age and
survivors insurance trust
fund
Federal disability insurance
trust fund
Federal hospital insurance
trudt fund
Federal supplementary
medical insurance trust
fund
Other.

65,89
6,83

726
284

62,'

at

93
i
E

-313

-136

222

59

137
67

75
79

71
59

141
77

102

206

165
100

216
73

-150

223
137
60

35

216

168

362

994

170
65

75
69

161
60

120
220

1,557
1,021

i,£
i
EE

is

-118
502
127

-65
411
128

73
•543
111

1,663
2,086
1,783
781
1

1,994
2,187
2,126
747
8

1,866
2,124
1,982
766
7

1,992
2,277
2,189
781
6

1,869
2,258
2,200
1,055
7

1,920
2,315
2,137
879
6

1,832
2,296
2,108
984
10

1,749
2,185
2,103
999
8

1,815
2,369
2,084
1,024
8

1,536
2,326
2,162
960
5

6,313

7,062

6,745

7,246

7,389

7,258

7,231

7,044

7,300

6,989

125

177

203

200

456
307
149

162
327
127

136
769
133

148
1,397
155

219
549
123

151
678
141

182
847
128

id:

75
1,087
151

1,519
8,206
1,583

1,913
2,497
2,154
1,054
9

1,768
2,472
2,017
950
8

21,918
27,393
25,042
10,980

7,627

7,216 85,420

77,6^

2,051

l,6!v

101
789
109

8,irc
____
— t
21,3f
23|9t
23>9V

211

198

1,114 1,108

1,149

1,101

1,133 1,299

1,243 1,225

1,006

676

1,728 1,698 14,479

4,435 4,505

4,579

4,598

4,581 4,673

4,628

4,717

4,739

4,732

4,779

5,713 56,678

617

623

610

651

658

679

662

669

702

675

712

724

7,983

6,3K

793

823

765

860

832

872

908

901

976

1,004 953

924

10,610

8,0f

309
1,422

313
1,436

292
1,450

339
1,491

349
1,579

332
1,582

385
1,963

344
1,361

368
1,937

403
2,640

387
471

4,169
18,492

3,2!
13.2J

153

129

137

138

156

347
1,161

224

13,21,
49,45

TABLE V--COMPARATIVE STATEMENT OF BUDGET RECEIPTS AND OUTLAYS
BY MONTHS OF CURRENT FISCAL YEAR-Contlnued

29

(Figures are rounded in millions of dollars and m a y not add to totals)

July

Classification

Aug.

Sept.

Oct.

Nov.

Dec.

Jan.

Feb.

March

April

May

June

Comparable
Period
Prior
F.Y.

Fiscal
Year
To
Date

OUTLAYS—Continued
Department of Housing
__l Urban Development
Department of the Interior....
Department of Justice
^apartment of Labor:
U n e m p l o y m e n t trust fund ...
Other
Department of State
rtment of Transportation:
riiway trust fund
aer
rtment of The Treasury:
•rest on the public debt..
erest on refunds, etc. ...
aeral revenue sharing ...
ler
Energy Research and Development Administration
Environmental Protection
Agency
General Services
Administration
National Aeronautics and
Space Administration
Veterans Administration:
Compensation, pension, and
benefit programs
Government life insurance
fund
National service life
Insurance fund
Other...
Independent agencies:
Civil Service Commission ..
Postal
federalService
employer contribuSmall
tions Business
to retirement fund ..,
Administration
Interest
credited to certain
Tennessee
accounts Valley Authority.
Other andRoyalties on Outer
Rents
Undistributed
re- ..,
Continentaloffsetting
Shelf Lands
Allowances Undistributed
Total outlays—this year..
Total Outlays-prior year

240
146|
597'
355j
166 j
230
277 '
2,687 |
19,
1,538;
23 j
121 i
119 \

$573
$606
180 ; 176
173;
150
556 i 561
207 ! 258
67
538 561
322 i 406

$621
133
152
933
217
62

2,714 |2,662
19 |
41
1,533 i
4
-88 j 145
272 ! 300
I
165 i 200

2,794
18
(**)
-135
259

481
353

205

i

-296 i -10
216

247

-24 ;

-170 | -2

267

281 I 297

96
288

$501
70
185
1,727
482
51
359
361

$514 $414 $7,488 ! •4,786
155
1,793
163
2,162 !
180
1,797
172
2,067
1,610i 1,607 13,211 i; 6,149
2,818
917
4,437
457!
735
30
844
57:
4,738!
4,510
285
334
4,509
3,595
536
449

162
293

2,740
15
1,524
180
308

2,7611 2,765
18
23
5
(**);
18! 1,788
382
244

271

325

258

69

-133

-25; -43

$372
$794
75
216
175
167
1,293 1,456 I 1,738
475
343 ; 275 I
74 j
48
81
i
385
399!
284 j
353
405;
355
265
205

2,739
20

2,810 2,621
12
20
(**)
1,528
105
-114!
1
308
235 |
205 ! 201
I
-122 | 36
298 ! 283

(«*)

336

32,665 i
244
6,138|
2,131j
3,198

29,319
226
6,106
342
2,362

2,530

2,032

-624!

-276

1

3,267 1

3,252

315

287

301

185

628

639

639

646

7,581

6,633

5

5

86

78

40
821

39
779

36
721

731
8,178

623
6,003

639

671

536
46

7,036
1,877

5,692
1,698

18 70
106
69
683
553

618
767
6,957

753
401
5,119

i

666 i 621

612 | 621

615 ;

622

653 ; 619 j
i

9 ;

5 ;

59 i
50
522 j 557

6 :

l

59;
539
597

7

5

7!

51
474 |

489 j 528
562
388 ; 1,163 :

!

671

577
281

553 I 633 !

-271 ; -286

-309

-269

-717

-692 | -527

i

191 i 46
750 |
722

61
677

30
21
308

53
75
543

35
69
543

-278 j -619

-285

-232

-327

-3,980 |

-3,319

-749 ! -697

-427

-693

-691 i -530 -765 -7,690 1

-6,578

-312

-295 i-2,428 |

-6,748

i

i -697 ! -492
I
i
!
-30 ' -59

-48

-317 !-1,148

-49

Surplus (+) or deficit (-) prior year
....
-4,506

20,670

I 23,105

-1,787

+3,666

-6,827

-745

+4,173

22,079
-2,673

-5,463 -1,873

-34

-58

-300

-35 ! -44

-541

28,934 26,200

27,986

29,601 j28,186 130,296 324,601

19,681

I
23.664 ,21,039

22,902

22,219

-2,496

-3,914 -6,225

-7,852 | +1,850 •15,394 nl,521 -43,604

24,411 ! 25,408 > 24,712 , 26,46024,965 27,442
22,717 i 22,110

581

23
59
461

23 i 62
122
70 I
580 j 854
-264

1

5

21 ! 6

56
947

12
70
825

55 I
46 i
694

6 j

44
669

31 !
205 !
27 i
33 !
471
441

Surplus (+) or deficit (-) this
-3,472
year

See footnotes on page 3.

$681 i
242 :
159 :
! 540 |
593 '
196 i
256
74 |
67
!
i
413 !
469 |
357 \ 333 :
!
2,657 !
20 : 2,715
18 !
(**) ,
7!
-125 !
168
j
235 \
242
139 j
107
231
202

+2,309

-189

-815

-6,083

+7,441

24,034

\24,172

•4,794 +7,087

268.392

-3.460

/7>
30

TABLE VI--TRUST FUND IMPACT ON BUDGET RESULTS AND INVESTMENT HOLDINGS (In millions)

Classification
Receipts

Trust receipts, outlays, and investments held:
Federal old-age and survivors

Federal supplementary medical
Federal employees retirement....
Federal employees life and health

Receipts

Outlays

Excess of
receipts
or outlays^)
..

Beginning of
This year

This month

Close of
this month

$3,650
450
610

$309
267
502

$55,207
7,250
11,258

$52,143
7,284
9,305

$3,065
-34
1,952

$37,717
8,195
7,864

$40,434
7,927
9,270

$39,892
8,158
9,761

168
245

213
-4,602

-45
4,847

1,901
2,565

1,737
-1,779

166
4,344

1,231
34,435

1,423

1,378
38,759

-153
3
-5
5
7
23
189
678
-242
323

153
-3
91
-5
500
-23
-49
-586
242
-321

-361
-408
483
6,138
4,257
-878
2,805
11,788
-99
16

361
408
479
67
1,931
878
-1,316
-5,017
99
24

1,672
5,861
878

1,892
6,270
1,793

2,031
6,265
1,936

7,599

9,080

9,536

4,549
12,121
7,567
56

3,293
7,969
7,452
57

4,259
7,184
7,631

7,026

1,148

5,878

99,836

92,428

7,408

129,745

130,769

136,847

8,362

8,362

19,726

19,726

15,388

9,510

5,878

119,562

112,154

7,408

24,791

29,148

-4,357

187,366

238,377

-51,012

11

11

130

130

24,802

29,159

187,496

238,507

-8,373

-8,373

-26,061

-26,061

31,817

30,296

280,997

324,601

86
507
139
92
2
Trust funds receipts and outlays
on the basis of Table DJ and
investments held from

Excess of
Outlays receipts
or outlays^)

$3,958
717
1,112

Federal Deposit Insurance Corp...

Railroad retirement

Securities Held as Investments
Current Fiscal Year

Fiscal Year to Date

Current Month

Interfund receipts offset against

962
6,205
6,188
1,489
6,771
40

57

Total trust fund receipts and
Federal fund receipts and outlays on
the basis of Table HI
Interfund receipts offset against
Total Federal fund receipts and
Total interfund receipts and outlays ...

-4,357

1,521

-51,012

' -*'iSE
*/-

-43,604

See footnotes on page 3.
Note: Interfund receipts and outlays are transactions between Federal funds and trust funds, such as, Federal payments and contributions, Federal
employer contributions, and interest and profits on investments in Federal securities. They have no net effect on overall budget receipts and
outlays since the receipt side of such transactions is offset against budget outlays. In this table, interfund receipts are shown as an adjustment
to arrive at total receipts and outlays of trust funds and Federal funds respectively. Included in total interfund receipts and outlays are $6,205
million in federal funds transferred to trust funds for general revenue sharing.

TABLE VII-SUMMARY OF RECEIPTS BY SOURCE AND OUTLAYS BY FUNCTION (In thousands)

7
31

Total Budget

Source
This Month

Fiscal Year
T o Date

Comparable Period
Prior Fiscal Year

NET RECEIPTS
t

idividual income taxes
orporation income taxes
ocial insurance taxes and contributions:
, Employment taxes and contributions
Unemployment insurance
Contributions for other insurance and retirement ...
xcise taxes
.state and gift taxes
justoms
liscellaneous
| Total ..

$13,123,107
9,577,550

$122,385,980
40,621,179

$118,951,631
38,619,654

5,926,474
92,123
412,517
1,463,895
411,765
301,395
507,837
31,816,664

75,204,416
6,770,706
4,465,868
16,550,686
4,611,125
3,675,532
6,711,349
280,996,840

65,892,164
6,836,545
4,051,342
16,843,668
5,034,640
3,334,138
5,368,613
264,932,400

7,854,311
557,031
256,456
787,840
178,844
1,288,859
452,558
1,684,441
2,594,133
11,564,166
1,412,451
237,629
521,010
-14,400
2,521,100
-1,600,857
30,295,572

88,238,343
4,198,391
4,153,842
7,921,034
1,991,066
15,565,537
4,410,026
15,110,280
27,444,483
108,888,538
16,595,145
2,759,043
3,704,602
6,699,984
31,018,819
324,600,960
-14,098,173

78,568,540
3,593,005
4,154,043
6,390,241
2,230,029
13,100,014
4,910,094
11,600,144
22,073,035
84,431,067
13,386,006
2,462,102
3,327,174
6,746,029
28,072,121
-16,651,661
268,391,983

', OUTLAYS
'ational defense
i&ernational affairs and finance
Jeneral science, space, and technology
Jatural resources, environment, and energy
•griculture
Commerce and transportation
ommunity and regional development
ducation, manpower, and social services
ealth
come security
Veterans benefits and services
7lw enforcement and justice
eneral government
jvenue sharing and general purpose fiscal assistance.
terest
Distributed offsetting receipts
Total

GP0 BHi'l

For sale by the Superintendent of Documents, U. S. Government Printing Office, Washington, D. C. 20402
I Subscription price $62.20 per year (domestic), $15. 55 per year additional (foreign mailing), includes all issues of daily Treasury statements,
i
the Monthly Statement of the Public Debt of the United States and the Monthly Treasury Statement of Receipts
5
and Outlays of the U. S. Government. N o single copies are sold.

^

—

—

—

—

—

—

*

—————mmmmm-m^——.

[fie Department of theTREASURY
ASHINGTON, D.C. 2022

TELEPHONE 964-2041

r

•a-

FOR IMMEDIATE RELEASE

August 29, 1975

RESULTS OF TREASURY'S WEEKLY BILL AUCTIONS
Tenders for $3.1 billion of 13-week Treasury bills and for $3.2 billion
of 26-week Treasury bills, both series to be issued on September 4, 1975,
were opened at the Federal Reserve Banks today. The details are. as follows:
RANGE OF ACCEPTED
13-week bills
COMPETITIVE BIDS: maturing December 4, 1975
Discount
Rate
98.407 a/
6.302%
98.381
6.405%
98.387
6.381%
Price

Investment
Rate 1/

High
Low
Average
a/ Excepting 1 tender of $1,295,000
b/ Excepting 1 tender of $1,000,000

6.51%
6.62%
6.59%

26-week bills
maturing
March 4, 1976
Discount
Price
Rate
96.552 b/ 6.820%
96.520
6.884%
96.529
6.866%

Investment
Rate 1/
7.18%
7.25%
7.23%

Tenders at the low price for the 13-weak bills were allotted 77%.
Tenders at the low price for the 26-week bills were allotted 71%.
TOTAL TENDERS RECEIVED AND ACCEPTED BY FEDERAL RESERVE DISTRICTS:
District

R Bceived

Boston
$
55,945,000
New York
3 ,876,690,000
63,335,000
Philadelphia
129,960,000
Cleveland
94,690,000
Richmond
37,395,000
Atlanta
326,430,000
Chicago
52,970,000
St. Louis
44,470,000
Minneapolis
46,230,000
Kansas City
32,175,000
Dallas
604,090,000
San Francisco
T0TALS$5,364,380,000

Accepted

Received

Accepted

$
81,180,000 $
26,180,000
$
39,945,000
4,909,245,000
2,130,595,000
2,069,555,000
61,875,000
16,875,000
46,335,000
233,940,000
172,940,000
89,960,000 :
98,915,000
72,335,000
82,940,000
67,325,000
54,325,000
36,515,000
547,590,000
181,880,000
178,055,000
63,360,000
39,360,000 2.
38,940,000
51,395,000
27,395,000 ~
29,470,000
44,230,000
43,650,000
35,035,000
33,880,000
19,380,000
27,175,000
680,785,000
424,545,000
417,940,000
$3,101,060,000 c/ $6,873,140,000

$3,200,845,000 d/

c/ Includes $518,160,000 noncompetitive tenders from the public.
d/ Includes $293,260,000 noncompetitive tenders from the public.
1/ Equivalent coupon-issue yield.

JuoKy

3\}\°n5

UNITED STATES SAVINGS BONDS ISSUED AND REDEEMED THROUGH
(Dollar amounts in millions - r o u n a W and will not necessarily add to totals)
DESCRIPTION

AMOUNT
REDEEMED-

AMOUNT ISSUE o-f

AMOUNT
OUTSTANDING—'

% OUTSTANDIN*
OF AMOUNT ISSU

MATURED
Series A-1935 thru D-1941
_
Series F and G-1941 thru 1952

^TOOA

Series J and K 1 9 5 2 thru 1957

INWATURED
Series E-^ :
1941
1942__
1943.
1944.
1945
1946.
1947
1948
1949
1950.
1951
1952
1953
1954.
1955
1956.
1957.
1958.
1959.
1960.
1961.
1962.
1963.
1964.
1965_
1966.
1967.
1968.
1969.
1970.
1971.
1972_
1973_
1974.
1975.
Unclassified
Total Series E
ierres H (1952 thru May, 1959) 4L
H (June, 1959 thru 1974$ _
Total Series H
Total Series E and H
Total matured
All Series Total unmatured
Grand Total

I 7hi
•' 9 t

/3?c
/fr/4'7

MZ

ian

M^.T?
S.O'-H
*\ 700
J£lTO__
_L20I
_± o tfO
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rfiii
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•T 7fe ?
9

9 -• c^

TO 3/
1±
iS 71
J.)

.T
?fe5
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ToT

^

SlQ__

M ")0l

Tm
^g vs
77^
331

VL

5090
r

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^05

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c*L H 3'9r

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7 76.

LOS*
9X7

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££5
?6>7L

/^•/V

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7, 9 ?

/£3/

C7i

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1 2 etc

8 ^

3h78

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4 /*/<?
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3.3 k.?
3£fl7
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^
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sa

The DepartmentoftheTREASURY
tfHINGTON, D.C. 20220

TELEPHONE 964-2041

/

FOR RELEASE AT 4:00 P.M.

September 2, 1975
TREASURY'S WEEKLY BILL OFFERING

The Department of the Treasury, by this public notice, invites tenders for
two series of Treasury bills to the aggregate amount of $6,100,000,000 , or
thereabouts, to be issued September 11, 1975, as follows:
91-day bills (to maturity date) in the amount of $2,900,000,000, or
thereabouts, representing an additional amount of bills dated June 12, 1975,
and to mature December 11, 1975

(CUSIP No. 912793 YB6),

originally issued in

the amount of $2,591,450,000, the additional and original bills to be freely
interchangeable.
182-day bills, for $3,200,000,000, or thereabouts, to be dated September 11, 1975,
and to mature March 11, 1976

(CUSIP No. 912793 YX8).

The bills will be issued for cash and in exchange for Treasury bills maturing
September 11, 1975, outstanding in the amount of $5,107,490,000, of which
Government accounts and Federal Reserve Banks, for themselves and as agents of
foreign and international monetary authorities, presently hold $2,873,815,000.
These accounts may exchange bills they hold for the bills now being offered at
the average prices of accepted tenders.
The bills will be issued on a discount basis under competitive and noncompetitive bidding, and at maturity their face amount will be payable without
interest.

They will be issued in bearer form in denominations of $10,000,

$15,000, $50,000, $100,000, $500,000 and $1,000,000 (maturity value), and in
book-entry form to designated bidders.
Tenders will be received at Federal Reserve Banks and Branches up to
one-thirty p.m., Eastern Daylight Saving time, Monday, September 8, 1975.
Tenders will not be received at the Department of the Treasury, Washington.
Each tender must be for a minimum of $10,000. Tenders over $10,000 must be in
multiples of $5,000.

In the case of competitive tenders the price offered must

be expressed on the basis of 100, with not more than three decimals, e.g., 99-925.
Fractions may not be used.
Banking institutions and dealers who make primary markets in Government

(OVER)

-2securities and report daily to the Federal Reserve Bank of New York their positions
with respect to Government securities and borrowings thereon may submit tenders
for account of customers provided the names of the customers are set forth in
such tenders.

Others will not be permitted to submit tenders except for their

own account.

Tenders will be received without deposit from incorporated banks

and trust companies and from responsible and recognized dealers in investment
securities.

Tenders from others must be accompanied by payment of 2 percent of

the face amount of bills applied for, unless the tenders are accompanied by an
express guaranty of payment by an incorporated bank or trust company.
Public announcement will be made by the Department of the Treasury of the
amount and price range of accepted bids.

Those submitting competitive tenders

will be advised of the acceptance or rejection thereof.

The Secretary of the

Treasury expressly reserves the right to accept or reject any or all tenders,
in whole or in part, and his action in any such respect shall be final. Subject
to these reservations, noncompetitive tenders for each issue for $500,000 o r less
without stated price from any one bidder will be accepted in full at the average
price (in three decimals) of accepted competitive bids for the respective issues.
Settlement for accepted tenders in accordance with the bids must be made or
completed at the Federal Reserve Bank or Branch on September 11

1975 ^-n

cas

b or

other immediately available funds or in a like face amount of Treasury bills
maturing September 11, 1975. Cash and exchange tenders will receive equal treatment.

Cash adjustments will be made for differences between the par value of

maturing bills accepted in exchange and the issue price of the new bills.
Under Sections 454(b) and 1221(5) of the Internal Revenue Code of 1954. the
amount of discount at which bills issued hereunder are sold is considered to
accrue when the bills are sold, redeemed or otherwise disposed of, and the bills
are excluded from consideration as capital assets.

Accordingly, the owner of

bills (other than life insurance companies) issued hereunder must include in his
Federal income tax

return, as ordinary gain or loss, the difference between

the price paid for the bills, whether on original issue or on subsequent purchase,
and the amount actually received either upon sale or redemption at maturity
during the taxable year for which the return is made.
Department of the Treasury Circular No. 418 (current revision) and this notice,
prescribe the terms of the Treasury bills and govern the conditions of their
issue.
Branch.

Copies of the circular may be obtained from any Federal Reserve Bank or

£6/
For Release on Delivery at
11:00 a.m., EDT, Tuesday,
September 2, 1975
ADDRESS BY THE HONORABLE WILLIAM E. SIMON
SECRETARY OF THE TREASURY OF THE UNITED STATES
BEFORE THE 1975 ANNUAL MEETINGS OF THE
BOARDS OF GOVERNORS OF THE
WORLD BANK GROUP AND THE INTERNATIONAL MONETARY FUND
AT THE SHERATON PARK HOTEL
WASHINGTON, D . C , SEPTEMBER 2, 1975
Mr. Chairmen, Mr. McNamara, Mr. Witteveen, Fellow Governors and Ladies
and Gentlemen:
It is a privilege to address this distinguished audience once again
and to share with you today the views of the United States on the major
economic issues facing the world.
In general, the outlook for the international economy is now more
hopeful than it was earlier this year. Most of the major industrial
countries have adopted vigorous expansionary policies. Several nations,
including the United States, have begun the process of recovery. Despite
serious strains, the level of international cooperation remains undiminished.
Few countries have resorted to policies which might yield domestic gains
at the expense of their neighbors. And the more affluent nations are
strengthening their efforts to assist those who are less fortunate.
Yet there can be no doubt that the pattern of progress is highly
uneven. In a number of countries, the downward economic spiral continues
still, becoming more prolonged and severe than once expected. The
hardships created by an inflation of unparalleled strength, brutally
sharp and unanticipated increases in the cost of energy, and a harsh
recession -- all of these remain a painful, living reality in too many
parts of the world. Thus, the urgent task still before us is to work
together in restoring a broadly based, forward momentum to the world
economy which will provide the foundation for sustained, non-inflationary
growth in every nation.
As we press forward, it is essential that we maintain our bearings:
-- We must carefully support and encourage the forces of recovery
without yielding to the temptations of excessive stimulation;
S-378

Jhz,
-- We must persevere in our efforts to control inflation without
disrupting the process of recovery. A durable recovery will be possible
only if we master the causes of inflation;
-- We must reach a better accommodation on the problems of energy
while continuing to support the oil-exporting nations in their quest for
economic advancement;
-- We must encourage economic development among poorer nations;
-- And we must ensure that we have a smoothly functioning monetary
system.
Let me turn now to a more detailed consideration of each of these
issues.
Prospects for Economic Growth
The United States is acutely aware that its own economic policies
bear heavily not only upon the livelihoods of our own citizens but upon
those in other nations as well. While our economy is no longer as
predominant in the world economy as it once was, our gross national
product still amounts to over one-quarter of the world total and we
represent the world's largest import market. Therefore, the single most
important contribution we can make to the health of the world economy is
to achieve durable, non-inflationary growth within our own borders.
Fortunately, there is now abundant evidence that an economic
recovery is well underway in the United States. My government is determined to sustain this recovery while also bringing inflation under
control and adopting those policy measures necessary for lasting growth.
We need not, and we should not, seek to choose among these objectives.
We have learned from hard experience that all of our economic goals must
be pursued simultaneously. We will not provide excessive stimulation
that would only intensify inflationary pressures, preempt the capital
that is needed to sustain the recovery, and run the risk of setting off
another vicious cycle of inflation and recession. Nor will we allow our
concern with inflation to prevent us from actively supporting the
natural forces of recovery or taking additional expansionary measures if
they should be needed. We are not ready to acquiesce in either stagnation or inflation as a way of life.
Some have suggested that in order to help other nations out of
recession, the United States should embark upon much more stimulative
fiscal and monetary policies. We respectfully disagree. Too many of
our current domestic troubles are rooted in such excesses in the past.

- 3 Since 1965, the average U.S. Federal budget deficit and the average
annual growth in our money supply have been about three times as large
as in the preceding decade. It is no accident that during the earlier
period our country enjoyed reasonable price stability while in recent
years we have had increasing difficulty in containing inflation. And
inflationary expectations are now so deeply embedded in our society that
they will not disappear quickly. The financial sins of a decade cannot
be forgiven by a day of penance. Our policies in the United States must
be designed to attack the causes of inflation, not their results. In
the long run, that will bring the most lasting benefits to us all.
While the revival of the United States economy will help to bolster
both the economic prospects and the confidence of other nations, it
would be unrealistic to expect that any single country could lead the
rest of the world out of recession. Expanded world trade should not be
regarded as the source but as the product of recovery. Indeed, let us
recognize that the process of solving our economic troubles must begin
at home with each country acting on its own to make the tough decisions
that are essential for sound, durable growth. As that process spreads
from one nation to the next, it will become mutually reinforcing and all
nations will realize greater benefits. In addition to the expansionary
efforts undertaken by the United States earlier this year, several other
major industrialized nations have now adopted more stimulative policies.
Taken together, these actions should provide a forward thrust to the
world economy.
As our policies of expansion gradually take effect, we ask ourselves:
Have we done enough? Should we do more to speed up the effects? To the
extent that some of our people believe we are not moving rapidly enough
to create jobs and to restore our standard of living, there may be
adverse social and political pressures. Yet it is equally clear that if
we overheat our economies, we will re-ignite the fires of inflation and
create another recession with more serious economic and social consequences.
Our highest responsibility as finance ministers, I would respectfully
suggest, is to pursue sound, balanced policies which promote economic
growth without encouraging renewed inflation. That often proves to be
politically unpopular in the short run, but in the long run it will do
far more to create jobs and serve the best interests of our people than
the palliatives so often urged upon us. History is littered with the
wreckage of governments that have refused to face up to the ravages of
inflation, and none of us can afford, either through short-sightedness
or lack of determination, to yield to these temptations.
Beyond the problems of determining fiscal and monetary policies,
nations must also deal with the difficulties created by high oil prices.
Almost two years after the first oil price shock, it is evident
that we are only beginning to understand the full impact as well as the
threat to our future which is posed by escalating oil prices. It is now

- 4 obvious that the most serious consequences are not financial but political and economic. While we must and will continue to devote special
attention to the problems of the financial system in adjusting to new
realities, we can be confident of our capacity to manage such problems.
But the economic consequences of these oil policies -- the higher costs
that have come not just in energy but in many other vital commodities
such as food, the structural adjustments that have been necessary, the
loss of jobs, and the obstacles to economic growth -- cannot be so
easily managed.
In our view, current price levels for international oil can be
justified on neither economic nor financial grounds. The present
pricing policies of the OPEC countries mean that cheap energy remains in
the ground and that the prosperity of all nations is diminished. Moreover, high oil prices lie at the root of much of the world's recent inflation and the recession that followed. Yet now the possibility of
another increase in oil prices looms on the horizon. Let there be no
misunderstanding about the result of another major price increase: it
would seriously jeopardize the balance upon which global economic recovery
now depends.
We urge the OPEC nations to recognize, as others have done in the
past, that the prosperity of each nation is deeply intertwined with the
prosperity of all nations.
Another price increase seems especially inappropriate in light of
our efforts to address the legitimate problems facing the oil exporting
nations as well as other developing countries. We have taken significant steps to bring about a dialogue between producers and consumers.
We have proposed the establishment of commissions to deal with critical
problems in the areas of energy, raw materials, development and related
financial questions. Special bilateral programs have been set up with
the oil exporting countries and considerable progress has been recorded.
All of these measures reflect our sincere desire to work cooperatively
with the oil exporters as they strive for higher standards of living and
more diversified economies. In turn, we urge that they work cooperatively with us and with other nations to enhance the prospects for a
world economic recovery.
Let me add that the substantial financing requirements of industrial
countries in this period of OPEC surpluses dictate that we continue to
keep the adequacy of international financing arrangements under review.
I am confident that in the future, as in the past two years, private
financing mechanisms will continue to play the dominant role in channeling OPEC funds to various borrowers. At the same time, we welcome the
prospective establishment of the Financial Support Fund agreed upon
among the member countries of the Organization for Economic Cooperation
and Development. That fund will supplement IMF resources and provide

- 5 needed insurance in an uncertain period. Particularly important in
present circumstances is the assurance thereby provided that, if needed,
financing will be available to facilitate the pursuit of sound expansionary policies by the industrial countries.
Problems of the Developing Countries
Those who have suffered the most from higher oil prices and the
deterioration in world economic conditions have been those who least
deserve to suffer and are least able to protect themselves -- the poor
and the needy of the developing countries. In the industrialized nations,
the problems of inflation, exorbitant energy prices and the resulting
recession have often meant hardships, but they have not brought large
numbers of people to the edge of desperation. Hopes for the future may
have been dampened but they have not been crushed. Sadly, the same
cannot be said of the less fortunate nations of the world, where hunger
and illness are the immediate result of reduced incomes. In these
circumstances, the United States and other industrial nations are
determined to make special efforts to assist developing nations in their
efforts to sustain the momentum of their economic and social progress.
We do so from a sense of compassion, and out of a realization that the
prosperity of the developing world also serves to support our own
continued prosperity.
The World Bank and the International Monetary Fund have already
proven that they are highly effective instruments for working with
developing countries in devising the most promising plans for economic
growth. But we believe that more must now be done within the framework
of those institutions to assist the developing countries.
Yesterday, in a speech read on his behalf at the United Nations,
Secretary Kissinger set forth a range of proposals that he and I, under
the leadership of President Ford, have developed together. Three of
those proposals are of particular importance for the Fund and the Bank.
First, the United States proposes as a matter of high priority that
a development security facility be created in the IMF to meet the needs
of those developing nations suffering from sharp fluctuations in export
earnings. It would replace the existing compensatory finance facility.
We fully recognize that excessive fluctuations in export earnings can
disrupt development efforts and that many producing nations lack sufficient financial reserves to cushion themselves against sharp drops in
their earnings. We believe that compensatory facilities to finance
shortfalls in export earnings would be both more effective and more
efficient in reducing such disruptions than commodity pricing arrangements. Shortly after the completion of these meetings, we will submit
detailed proposals to the Executive Board of the IMF calling for the

_3*fi

-6 creation of the facility. They will also call for broadening the
purposes of the proposed Trust Fund, enabling it to provide grants to
the poorest countries experiencing export shortfalls and allowing
some use of the Trust Fund resources to supplement the proposed facility.
Secondly, we pledge our support to a major expansion of the International Finance Corporation, permitting that organization to serve as a
more effective catalyst for growth of the private sector in developing
countries. We agree with Mr. McNamara that the role of the IFC in mobilizing additional private investment is now more important than ever.
There can be little doubt that much of the increase in living standards
within developing countries must come from increased private sector
production of goods and services. Arrangements should be made in the
next few months to give the International Finance Corporation better
tools to assist the domestic private sector and to make the IFC a full
partner in the Bank Group. Moreover, the IFC should play an active part
in bringing together foreign and domestic investors. It should act
aggressively to arrange financing for mineral production in developing
countries where, as an impartial international party, it can help to smooth
relationships between international companies with technology and markets
and national authorities who understandably wish to strike the best
bargain for their countries. The IFC should also develop imaginative
financial arrangements, including a new investment trust, so that equity
shares in joint ventures can gradually be purchased by private individuals and firms in developing countries. All of these activities will
complement the ongoing work of the World Bank, which must continue to
assist in financing related infrastructure such as ports and roads and
will, we expect, give higher priority to the most important aspect of
identifying obstacles to private savings and domestic private investment
in developing countries.
Thirdly, the United States once again urges that agreement be
promptly reached on the establishment of a Trust Fund managed by the IMF
in order to provide highly concessional balance of payments financing
for the poorest developing countries. Nearly a year has passed since my
government first proposed the Trust Fund and urged that a portion of the
IMF gold be sold to help finance this worthy cause. We are pleased that
there has been increasing recognition that the Trust Fund concept
represents the most effective means of providing fast-disbursing financial support. This is one way we can move ahead immediately to
respond to the severe financing needs faced by the developing countries;
we can agree now to see a portion of IMF gold used without waiting for
time-consuming amendments of the Articles. Even as we have delayed in
establishing this fund, the need for it has grown. Let us resolve to
act promptly.

- 7 In addition to these major initiatives, other steps should be taken
so that the Bank and the Fund can more adequately meet today's needs.
As the oil facility of the IMF phases out this year, we should take
action to assure the immediate useability of all currencies held by the
IMF. We also need to direct early attention to a review of the tranche
policies of the Fund and to consider whether changes should be introduced in these policies in order to provide increased access to the
Fund's regular drawing facilities. This would enable the Fund to play
the expanded and more active role required of it in today's world.
The World Bank is by far the largest and most influential development lending institution and as such has a major role to play in assisting
developing nations achieve their development goals. It is of the greatest
importance that the quality of this work and the soundness of its financial position be sustained. Since the lending program now being
implemented by the Bank carries with it demanding assumptions about the
Bank's long term ability to borrow funds, it is important that the
management and executive directors of the Bank work together to assess
carefully the role the Bank should play in the development process in
the next decade and to examine the implications of this for the capital
of the Bank and the nature of its programs. With capital an increasingly
scarce resource, critical for the growth of the developed as well as the
developing countries, it is essential that we have a clear understanding
of the priorities which should govern the lending of an institution
whose borrowing now approaches $5 billion per year. The U.S. will
continue to provide strong support to the Bank, and we will assist in
helping it maintain a sound financial position.
As I said last year, we support a substantial increase in World
Bank share ownership and voting power for countries newly able to make a
major contribution to development through the Bank Group. Such an
increase should be determined country-by-country and increases in
capital should be accompanied by commensurate contributions to the
International Development Association to help the poorest countries as
well as the middle-level countries.
I stress the importance of IDA contributions because of the association's central role in meeting the needs of the poorest and least
developed countries. They have the least ability to deal with the
impact of economic events on their development and only a combined
effort of present members and nations newly able to contribute will
enable IDA to assist those countries adequately in the future. Mr.
McNamara has announced that negotiations for the next replenishment of
IDA will commence in November. A satisfactory agreement on extending
IDA's resources will be possible only with the full collaboration of all
countries in a position to contribute.

Beyond these measures, developed nations must also support the
long-standing development efforts such as the regional development banks
and our bilateral assistance programs. These programs have shown their
effectiveness over the years and deserve to be strongly supported. It
is also important for all countries to open their capital markets to the
borrowing of the Bank and of the developing countries themselves.
In setting forth these proposals today and reviewing the activities
of the World Bank and the International Monetary Fund, I would be less
than candid if I did not add that in and of themselves, the measures I
have outlined will not be sufficient to ensure economic development. We
must not mislead ourselves on this matter. Far more important to the
developing nations than the financial assistance that industrialized
countries may provide to them is the restoration of stable, non-inflationary
growth around the world. And, in the long run, the policies and efforts
of the developing countries themselves will be the most decisive.
History has shown that no matter how generous others may be, those who
have been helped the most are those who have helped themselves.
While the developed nations must provide financing and open up
their markets, the effectiveness of such assistance depends heavily upon
the ability of the developing countries themselves to assure the best
use of all resources, domestic as well as foreign. Development assistance
should be thought of not as an international welfare program to redistribute the world's wealth but as an important element of an international investment program to increase the rate of economic growth in
developing nations and to provide higher living standards for people of
^4^ nation. The effectiveness of international investment, private
and public, depends fundamentally on the policies and efforts of each
developing country.
I am particularly struck by the impressive economic and social
progress made by countries which participate fully in the world market,
which rely on market forces to provide incentives for efficient use of
resources, and which maintain a favorable climate for foreign and
domestic private investment.
In short, the process of economic development requires the cooperation and full efforts of each of us in pursuing economic policies
to maximize production, income and trade for all countries.
International Monetary Arrangements
Let me turn now to a discussion of international monetary issues.
We have achieved a significant breakthrough in our meetings this
week in resolving many of the most difficult international monetary

-9-

*^A?

issues before us and in paving the way for a final comprehensive agreement in January. The technically complex -- and politically sensitive -question of arranging a major quota increase and allocating national
shares is substantially resolved. We have also succeeded in settling
the thorny issues involved in phasing gold out of the international
monetary system. Both of these agreements required concessions by many,
but the result provides concrete evidence of the continuing spirit of
cooperation and good will on which these institutions are founded. Once
again we have demonstrated that through patient negotiation it is possible
to arrive at an accommodation of conflicting views which is acceptable
to each of us and beneficial to all of us.
Let us now proceed to the final component of our negotiations -- an
agreement on amendment of the exchange rate provisions of the Articles -which will enable us to put into practice the accords reached here this
week. Amended provisions are needed which give legal recognition to
the realities of today's world and reflect the evolution of the system
that has occurred in recent years.
Two and a half years ago the par value system gave way to a voluntary
system of exchange rate practices under which some countries float
independently, some float jointly and some use pegged rates. We are
fortunate that this system was actually in place before the oil crisis
hit, and its flexibility has served us well in difficult circumstances.
1
.Let those who see stability in par values review again the chaos
and disorder of the closing years of the Bretton Woods system. Think
back to those days of market closures which disrupted trade and commerce.
Recall that the only sure winners were the speculators, who could be
assured that with time and persistence they would inevitably carry the
day. Remember, too, the hurried international conferences to try to
patch together some solution so that markets might open again. Think
back to the duration and difficulty of the Smithsonian negotiations and
the tensions associated with those negotiations. Those were the days
when our political cohesion was threatened by monetary difficulties.
The basic logic of the par value system implies a world which does
not now exist -- one in which prices are reasonably stable, and in which
current account balances adjust to capital flows that are relatively
slow to change. But the world has changed and we need a system that is
adaptable and is appropriate for the world as it is today, not as it
once was or as we might like it to be.
Today we have a system which is flexible and resilient. It has
enabled exchange markets to remain open and viable in the face of
pressures that would have previously been overwhelming. Even the massive
accumulations by the OPEC countries and occasional significant fluctuations
in particular exchange rates have not unsettled the system. It has been

- 10 possible to relax or eliminate many of the extensive restrictions on
capital movements and to find viable alternatives to restrictive current
account measures. The large payments deficits of today have provoked
fewer import restrictions by major countries than did the comparatively
minor payments difficulties of earlier years. Although rates of inflation
have varied enormously, from 6 percent in some countries to 25 percent
in others, the flexibility of our system has allowed exchange rates to
move so as to reflect these divergences in costs and prices. Attempts
to maintain fixed exchange rates under these circumstances would have quickly
and inevitably collapsed under the strain.
Some contend that the abandonment of par values is one of the
causes of the tidal wave of inflation which has swept the world and that
the voluntary system fails to provide the discipline needed to induce
countries to restrain their inflation. I cannot agree. It was inflation which made floating necessary. Of course, floating does not
prevent home-grown inflation or protect a country from drastic real
changes from abroad such as the sudden jump in oil prices. It can,
however, shield a country from imported inflation that results from
overly expansive fiscal and monetary policies abroad. As for floating
as an instrument of discipline, I believe that when a depreciating
exchange rate in a free market directly increases the costs of imported
goods, that has more meaning to the general public and political leaders
than the level of central bank reserves or official borrowing.
U.S. policy is to have our own exchange rate determined essentially
by market forces, and not by arbitrary official actions. We do not
propose to object if foreign countries elect to establish fixed exchange
rates among themselves -- the essence of a voluntary system is to
permit a free choice -- so long as our own desire for essential freedom
of the dollar exchange rate is respected. We are prepared to intervene
whenever necessary to maintain orderly exchange market conditions.
However, sizeable movements in exchange rates over a period of several
months are not necessarily indicators of disorderly markets -- and the
fact that such movements are sometimes reversed does not demonstrate
that it would have been possible for governments to prevent the initial
movement in rates, nor desirable to try.
When the pressures of inflation subside and economies recover, when
periods of calm between unexpected shocks become longer, then the behavior
of exchange rates will become more stable. The greater exchange stability
we all would like to see can only be achieved through sound economic
policies which result in greater domestic stability in all of our economies.

- 11 -

<£//

We believe strongly that countries must be free to choose their own
exchange rate system and that all countries, whatever choice they make,
must be subject to the same agreed-upon principles of international
behavior. The right to float must be clear and unencumbered. In view
of the great diversity in political systems, institutional arrangements,
size of national economies, and degree of dependence on foreign trade
and investment, our present world requires an open mind about the future.
I do not pretend to have the wisdom or the clairvoyance to predict
the precise exchange arrangements the world may desire or require far
in the future. Experience with the present Articles provides clear
evidence of the difficulty of specifying in rigid detail an exchange
rate system that can be expected to last forever. We must deal with the
world as it is today, and that now requires a system that can easily
adapt to rapid change. I know this can be done. Our agreements this
week on gold and quotas show that we can find answers to difficult
problems -- and that a mutually acceptable accommodation on exchange
rates can be achieved. The United States will approach the search for a
resolution of this problem with imagination and an appreciation of
others' views. We know that others will do the same.
Conclusion
Ladies and Gentlemen, it is apparent that the agenda for the future
is formidable:
-- To achieve lasting, non-inflationary growth;
--To reach an accommodation on energy;
--To encourage economic development; and,
-- To maintain a monetary system adapted to today's needs.
Each of these demands our full attention. The agreements we have
reached this week demonstrate that through cooperation and perseverance,
we can succeed. It is in that spirit that we must continue to move
forward. I pledge to you that the United States will remain a reliable
partner in this journey.
Thank you.
0O0

FOR RELEASE ON DELIVERY
STATEMENT OF THE HONORABLE WILLIAM E. SIMON
SECRETARY OF THE TREASURY
BEFORE THE COMMITTEE ON
BANKING, HOUSING, AND URBAN AFFAIRS
UNITED STATES SENATE
REGARDING LOCKHEED AIRCRAFT CORPORATION'S FOREIGN
SALES ACTIVITIES AND THEIR IMPLICATIONS ON THE
EMERGENCY LOAN GUARANTEE PROGRAM
AUGUST 25, 1975, 10:00 A.M.
Mr. Chairman, my testimony concerns the Emergency Loan Guarantee
program, and in particular the recent disclosures of secret payments
made by Lockheed Aircraft Corporation, the sole borrower under the
program, to officials of foreign governments.
Let there be no misunderstanding: the Emergency Loan Guarantee
Board does not, and will not, condone illegal or unethical activities by American business, here or abroad. The Board condemns such
actions in the strongest terms and is deeply concerned about the
possible improper use of Lockheed's corporate funds and its impact
on the guarantee program. We are disturbed that Lockheed's apparent
long-standing practice of resorting to bribery to sell its products
in foreign markets has escaped detection by the Board, and others
monitoring the company's activities. We are distressed that Lockheed's management has apparently not been forthright with the Board
and with Congress. As a Government official who has spoken out about
the importance of maintaining the free enterprise system, I find
Lockheed's actions deplorable. Lockheed's executives in making
WS-376

application for a Government benefit —

a guarantee of some

of their borrowings — have not disclosed what may prove
to be material information to the Administration and the
Congress. We recognize that very serious consequences
are involved for Lockheed, for the aerospace industry, and
for the loan guarantee program.
Before providing the Committee with an overview of the
problem, let me summarize briefly the steps the Board is
taking:
The Board has requested by letter that Lockheed:
(1) confirm its oral understanding with the Board that it is
to provide all material information concerning the bribes;
(2) will request its auditor to furnish separately to the
Board additional information regarding the transactions; and
(3) furnish any additional information regarding the payments
that the Board may deem necessary.
The Board has notified Lockheed that the Guarantee
Agreement does not provide for any waiver of the Board's
rights or remedies unless expressly waived in a writing
signed by the Board. In addition, the acceptance of any
certificates, representations, or other documents required
to be furnished by Lockheed, under the Agreement, should not
be deemed to constitute a waiver of any of the Board's
rights.

- 3 — As part of the Fiscal Agent's ongoing monitoring
activities, the Board has requested that it prepare a
current assessment of the Government's collateral under the
Credit Agreement.
— The Board has asked the Fiscal Agent to carefully
consider the Expenditure Plans, which Lockheed furnished to
the Board in connection with each drawdown of guarantee
funds, to determine whether the Expenditure Plans should be
regarded as false or incomplete in that no information
regarding the bribes was provided.
The Board's staff has questioned past officials
associated with the Guarantee program. None can recall any
information coming to his attention which indicated that
Lockheed was paying bribes to foreign officials.
The Board has requested that Lockheed's Agent Banks
review the information in their possession to advise whether
it indicates that Lockheed has been paying bribes.
— The Board's staff is in the process of undertaking
a complete review of its files, and has asked its Fiscal
Agent to do the same, in order to confirm that the Board had
no information about Lockheed's payments of bribes until
June of this year.

- 4 — The Board has requested that the General Accounting
Office, which is required to audit any borrowers under the
Emergency Loan Guarantee program and to report its findings
to the Board, search its files to determine whether or not
they contain any information regarding the payment of bribes
by Lockheed.
The Board's staff met with the GAO staff on August
19 for the purpose of creating a cooperative program whereby the Board may obtain whatever additional information it
deems necessary to assess its position under the Guarantee
Act and the Agreements.

Lockheed's Disclosure
Let me turn now to a discussion of how the Board learned
of the Lockheed bribes. The Board did not become aware that
Lockheed had paid bribes to foreign officials until early
June of this year. This information was first transmitted
orally to the Board's staff by Lockheed's financial officers.
They advised that while proxy materials had been cleared by
the Securities and Exchange Commission staff in connection
with the company's scheduled annual meeting on July 18, 1975,
Lockheed was unable to mail these materials to its shareholders. This was because Lockheed's independent auditor,
Arthur Young and Company, would not certify Lockheed's

_ 5 financial statements, unless the company acknowledged that
bribes had been paid to foreign officials and that the
extent of such payments-was defined. The Board's staff was
told that the company's financial officers and its independent auditor were reviewing foreign sales practices and
that the Board would be kept advised. The Board was aware
that Lockheed paid sales commissions to foreign consultants.
This practice was not cause for alarm in that it is a usual
way of doing business. Of course,, the Board recognizes the
difference between legitimate and appropriate finders' fees
and commissions to sales consultants and bribes paid to
governmental officials, either directly or through commissioned agents. As a result of its initial inquiries, the
Board's staff was left with an impression that there were
isolated instances of bribes and that the amounts involved,
while large, were not significant when viewed in comparison
with those reported to have been made by other corporations.
An allegation which has appeared in the press
on June 6 by the Northrop Corporation that it had
modeled a Swiss subsidiary utilized to facilitate payments to its agents after one established by Lockheed
had triggered Arthur Young and Company's

inquiry.

Discussions between the Board's staff and Lockheed

officials about these developments included the procedures
Lockheed was following in its review of foreign bribes and
the time period to be covered. The staff began to become
concerned that the dollar amount of payments made by Lockheed
was substantial and that bribery might have been in issue in
more than a few isolated instances. Additionally, Lockheed
advised that it had made political contributions of approximately
$25,000 in one country, but that such contributions were legal
under local lawOn June 16, the Board's staff met with the Arthur Young
and Company partner in charge of the firm's audit of Lockheed
to discuss what Arthur Young was doing in connection with its
review of the Lockheed bribes and the company's foreign sales
activities generally. This meeting reinforced the staff's
concern as to the magnitude of payments made.
On June 17 the Board's staff and a representative of its
Fiscal Agent, the Federal Reserve Bank of New York, met with
Lockheed's Senior Vice President for Finance at Lockheed's headquarters to discuss matters further with him. The Lockheed
official indicated that he and Arthur Young were making a
thorough review of the transactions in issue

- 7-

J/?

with a view towards reporting their findings to Lockheed's
Board of Directors on June 23.

He also stated that the

Guarantee Board's staff.would be provided with all relevant
information relating to payments by Lockheed to foreign
officials.

The staff recalls that it was at this meeting

that it became aware of a letter, dated April 29, 1975, to
Lockheed from the Securities and Exchange Commission staff
requesting that the company respond to certain general
questions regarding payments it may have made to officials
of foreign governments.
Initial Response by the Board
Once it had learned of the SEC's inquiry, the Board's
staff was kept advised by Lockheed on the status of this
inquiry.

The staff has also received information about an

inquiry into Lockheed's activities by the Senate Subcommittee
on Multinational Corporations.

Further, Lockheed has

furnished the Board with its submissions to the SEC describing
a number of transactions known or suspected by the company to
have involved payments to foreign officials.

Copies of

these submissions were furnished to the Chairman of this
Committee by the Board on August 15, 1975.
The Board's staff visited Lockheed's corporate headquarters again on July 21 and 22 to review the most current
information about the bribery inquiry and to evaluate
Lockheed's operating progress on its L-1011 program.

Lockheed permitted the staff to review Arthur Young's report
to Lockheed's Board of Directors, which described payments
made to foreign officals and the establishment of a slush
fund.

The report substantiated the information contained in

Lockheed's submissions to the SEC.

The Emergency Loan

Guarantee Board staff was informed by Lockheed officials that
some bribes involved efforts to market the L-1011 aircraft.

At various times in mid- and late July, the Board's
Executive Director, Edward C. Schmults, talked with each of
the three Members of the Board to alert them of the magnitude
of the problem.

He also advised the Board Members that the

staff was in the process of reviewing the Emergency Loan
Guarantee Act and the Agreements between Lockheed and the
ELGB to assess whether any violations or defaults have
occurred by reason of Lockheed's foreign payments and what
legal courses of action were available to the Board.
As this review developed in late July and early August,
it became apparent that additional information was needed in
order to determine whether the Guarantee Act or the
provisions of Lockheed's agreements with the ELGB had
been violated.

Additional issues also had to be considered.

These included the purposes underlying the Emergency Loan
Guarantee Act, the Board's responsibilities under the Act,
general U.S. policy with regard to bribery of foreign

- 9~

929c:

officials by U.S. corporations, and, finally, what actions
the Board ought to pursue in response to these considerations.
These considerations present difficult questions for the Board
to resolve. Among issues to be addressed are:
1. How can the Board distinguish between proper commissions to sales consultants and instances where
consultants use a portion of their fees to bribe
foreign governmental officials?
2. With the purpose of the Guarantee program being the
preservation of Lockheed's viability, should the
Board take action which (a) might put the company
at a competitive disadvantage with respect to both
other U.S. corporations and foreign competitors,
or (b) might cause Lockheed to fail, especially
where rules have yet to be prescribed?
3. Would Board action have broad application affecting
the ability of U.S. corporations to compete in
certain parts of the world, given local business
practices and customs?
In fact, the Board met earlier today in order to
continue its attempts to resolve these difficult questions.
Parenthetically, the Board reviewed a routine rollover of
$30 million of guaranteed notes due today.

The Board's Monitoring Functions
I think it would be useful at this point to explain the
procedure which the Board has followed to keep apprised of
developments regarding Lockheed. In passing on the Emergency
Loan Guarantee program, Congress had, as one of its primary
purposes, a desire to avoid creating another bureaucracy.
For this reason, among others, Congress directed the General
Accounting Office to audit any borrower under the program and
to report the results of its audits to the Board and to the
Congress. In this connection, I want to acknowledge the
controversy that took place in 1972 with regard to the GAO's
role. Treasury General Counsel Pierce contended that the GAO
did not have the statutory authority to review Board internal
records relating to its own decision making. In any event,
and in response to the position taken by Senator Proxmire and
then Chairman Sparkman of this Committee, the Board has
provided the GAO with every record in its files that has been
requested. I want to point out that there was no question
ever raised that the GAO could not inquire fully into
Lockheed's own affairs. In fact, the Board demanded a provision in the Guarantee Agreement whereby Lockheed is required
to provide the GAO full access to its records.
The Board is supported by a very small staff and by its
Fiscal Agent, the Federal Reserve Bank of New York, which

utilized officers and employees of its Credit and Discount
Department. The largest the Board's staff has been was three
full-time employees in- the spring of 1973. The staff's
efforts are supplemented on a when-needed basis by personnel
from the Board Members' respective agencies. At the present
time, the staff is comprised of an Executive Director,
Edward C. Schmults, who also is the Under Secretary of the
Treasury, and a full-time Secretary, Alan Vinick. A technical consultant and an attorney, assigned from Treasury,
also work for the Board on a part-time basis.'
The Board's staff and the Fiscal Agent have continuously
monitored Lockheed's operations, particularly since the
company experienced results in early 1972 which fell far short
of expectations. Monitoring activities have included review
of various Lockheed financial and production data, and
regular meetings with Lockheed officials, with Lockheed's
independent auditor (Arthur Young and Company), with
customer airlines, and with lending banks.
The Board's staff has made frequent trips to Lockheed's
facilities to review various programs in order to better
assess the financial statements provided by the company.
In the last two and a half years, the staff has spent
approximately 158 days reviewing Lockheed's operations at
the company's facilities. This figure excludes numerous visits
by the Fiscal Agent's representatives to Lockheed's facilities.

p3
Others have also been actively involved in reviewing
Lockheed's circumstances.

The Agent Banks advised us that,

based on a preliminary review of the information in their
files, their monitoring activities found no indication of
any bribes.

Further, Arthur Young and Company, Lockheed's

independent auditor, which employs in excess of 200 people,
or 25,000 hours, to perform Lockheed's yearly audit, has
orally advised us that until early June 1975 they too were
unaware of the fact that Lockheed had paid bribes.

The

point that I want to make is that if a system of making
payoffs is well contrived, monitoring a multi-billion-dollar
corporation's activities in a diligent fashion will usually
not uncover such practices.
Additionally, the Board has never sought in its
monitoring of Lockheed the task of verifying all of the
company's cash receipts and expenditures, but rather has
relied upon such information being furnished to it in the
form of consolidated financial statements or program
financial statements by the company's financial officers,
its independent public auditors, and the General Accounting
Office.

The Board's role in monitoring Lockheed has been

through a credit analysis approach which relies upon internal
and independent auditors, the normal practice employed by
commercial lenders.

- 13 Extension of the Guarantee
As you are aware, the Guarantee Board recently approved
a proposed refinancing plan for Lockheed which extended the
Government's guarantee for two years through December 31,
1977. I think it should be made clear that when the Board
met on May 17, 1975, to reach this decision, it had no
knowledge of Lockheed's payments to foreign officials.
At its May meeting the Board reviewed Lockheed's draft
financial statements for the year ended December 29, 1974.
The Board's staff was advised by Lockheed that these statements were in the form as to which Arthur Young and Company
was prepared to issue its audit certification subject only
to completion of Lockheed's pending refinancing plan. In
fact, at the time the formal agreements were executed, on
May 20, the Board was furnished with certified financial
statements signed by Arthur Young and Company, which, except
for minor modifications, were identical to those supplied to
the Board for its May 17 meeting.
The Board's staff and Fiscal Agent also reviewed the
five-year financial forecast completed by Lockheed in April
of this year. This financial forecast completed by Lockheed
in April of this year. This financial forecast was discussed
thoroughly at the Board's meeting. No reference was made
in the forecast about the payment of the bribes by Lockheed
to procure foreign business.

<J99

- 14 In addition, Lockheed's Chairman and its Senior Vice
President for Finance appeared before the Board on May 17,
1975, to discuss the risks associated with the company's
business and to review the refinancing plan. Again, no
mention was made of the company's payments to foreign
officials. I emphasize that this was at the time that
Lockheed had in its possession a letter from the SEC's staff'
asking for information about bribes paid by the company. It
was also during this time that Senator Church's Subcommittee
on Multinational Corporations was holding hearings on foreign
bribes paid by U.S. corporations.
Because of allegations that had appeared in the press
about other corporations, the Board's staff, in the process
of briefing itself and the Board, asked Lockheed whether it
had "laundered" funds through overseas subsidiaries for the
purpose of making political contributions in this country.
Lockheed's response to this question was that no such
activity had occurred. In retrospect, it would have been
advantageous to inquire as to whether Lockheed had made any
payments to foreign officials. That question was not,
however, considered at the time.

- 15 Concluding Remarks
From Lockheed's public statements, as well as from
information which we received from Lockheed, it is clear that
bribes had been paid prior to the Guarantee program. I want
the record to reflect that all of the Members of the Guarantee Board are not only deeply concerned by Lockheed's failure
to have advised us of these practices, but are distressed
that the Government has been involved, even indirectly, in
the L-1011 program if, as intimated by Lockheed, that program
is partially dependent upon bribes for its success. Whether
laws of the United States have been violated is to be determined following the reviews underway by the various Congressional committees and the agencies investigating these
questions. A broader policy, however, is at stake here.
The Emergency Loan Guarantee Board has been put in the
position of seeking to protect the Government's interest as
guarantor for creditors of Lockheed. In so doing, it finds
itself working with a company that alleges that foreign
payments of this nature are a normal and necessary method of
doing business abroad in the highly competitive aerospace
market. While the Board does not believe it is the appropriate agency to develop rules or standards of general
applicability, it is formulating its own assessment of what
has transpired in order to determine an appropriate course
of action under the Guarantee Act. This assessment will

include a balance of competing interests between the public'
right to know and the alleged potential adverse impact of
detailed disclosure on Lockheed's outstanding orders. Congr
likewise, has a responsibility to determine what actions
it should take in connection with the Government guarantee
of loans to Lockheed.
When the Board has completed its review it will then
be in a position to recommend whether a change in the
Guarantee legislation is desirable.
Mr. Chairman, let me repeat what the Board is doing.
In accordance with our responsibilities under the Act, we
have sought all pertinent information from Lockheed, and
others, so that we can address the underlying issues
thoroughly and intelligently. We are hesitant to prejudice
our position by presupposing what our response will be until
we are sure of the facts, are informed of the conclusions of
the SEC investigation, and have evaluated our own responsibilities under the Act. At that time, the Board will take
whatever actions it concludes are warranted in response to
Lockheed's misconduct.
Mr. Chariman, a crucial challenge facing us today is
the preservation of the free enterprise system. Practices
such as bribes made to secure foreign business can only
increase the distrust and suspicion that is straining our
national institutions. To argue that bribes to foreign

- 17 officials are necessary for effective competition is contrary to every principle under the free market system.
The Emergency Loan Guarantee Board wants to go on record
as condemning these practices.

SECRETARY SIMONs

Good morning, l&dias and

gentlemen, I would like to get going, I know John Turner
and Dennis Healey have a press conference,and you may
wish to attend those as well.
I feel this session is a little anti-climatic, my
being with you, ladies and gentlemen, to explain what
arrangements have been arrived at in the International
Monetary Fund meetings, because of the agreements that were
made over the weekend and the visits that I have had with
the press subsequently.
As 1 said at that time, we have made great progress
and had a significant breakthrough on soma of the controversial issues, gold and quotas, and we remain in the
negotiation in order to arrive at a final agreement on this
package of International Monetary reform, which I expect we
will be able to arrive at in January, after a hopefully
satisfactory conclusion of the exchange rate arrangements and
the adoption of the amendment that would address itself to
that question*
Now, having said that, I would like to open this
session up for Q's and A?s, recognizing that we don't have
much time.
QUESTION: Mr. Secretary, the South Africans and
other people who really like gold are jumping up and down
saying the interim committee agreement is good for gold,

- la*
that it just might freeze gold out of one monetary system
% %

and go out into another since it w i l l give central banks
|| the time to sell some dollars for gold — in exchange, it
will give central banks the chance to sell some dollars for
IMF gold and get more gold, and will give them the

chance

to exchange among themselves* The question I have is if this
is so, why did the United States agree to the gold accord, and
1

if it is not so, why did the United States decline to unbundle
the gold issue and make it contingent on the implementation
of the gold issue?
SECRETARY SIMON. We believe we need a comprehensive

11 agreement on the international monetary reform arrangements
which include the exchange rate issue. We have a clear

n mandate from our Congress that if we do not direct ourselves
to the exchange rate issue, allowing the freedom we desire in
these arrangements, that they would not act upon any amendifents
relating to gold or to quotas, and this is very clear.
17 I do not subscribe to the notion that I have heard
I in the past day that this is in danger of moving gold back in
the center of the system* We believe we have agreed to adequate
safeguards for the gradual phasing of gold out of the system.
The abolition of the official price^ the safeguards the central
bankers will adopt on trading among each other, and, of course,
&3 the most important part, the aboliton of the official settlements of gold and in the International Monetary Fund, and the

p<
li elimination of the IMF's ability to purchase gold, except

f

S ii
I! under extraordinary circumstances which will require an 85

j

t I I
5

'lit

per cent vote.
The United States, from time to time, as you well
know, will continue to sell gold on the marketplace, as I assume
so will others. As I say, with these arrangements we have
agreed to, or we will agree to, but also we have all agreed
at the beginning to commence the phase out of gold as the
center of the monetary system so it can be treated like any
[ other commodity*.
.0
As I say, when I say phase out, this does not mean
selling the gold precipitously and doing it in any specified
period of time. We must look at the markets. We donct want
to create disorderly markets. This will be done over a long
period of time.
QUESTION. Sir, suppose the price of gold drops whan
the /Mbnetary Fund sells it in the market. Would in such
circumstance the American Treasury completely rule out the
possibility of buying some of that gold in order to sustain
the receipts of the so-called Trust Fund?
SECRETARY SIMON: We never rule out any possibility.
2!
we judge a market on what is happening, the market at that
time, and make our decisions relative to that. That goes
i\ as far as our yelling is concerned. I would expect the
-.- i}
! United States would refrain from selling its own stocks when

I

4 ^3-^
gold w a s being disposed of by the INternational Monetary Fund.
| I would not rule anything out in this regard.

i

What I am saying is w h a t w e are trying to do in an
orderly fashion is phase gold out o f the international
system, at the same time while not disrupting markets.

5
Now the important aspect of this, there is n o price
fixing.

Indeed, one of the arrangements made over the weekend

is that no actions would be taken by any governments to peg
the prices o f gold. If w e are going to phase out gold, the
only way it can be done is to do it in an orderly fashion.
QUESTION:

You w e r e saying Sunday night the one-sixth j

11
sale could go ahead immediately without waiting for the
12
meeting in Jamaica.

£s that still y o u r position?

SECRETARY SIMON:
it could happen.

I am told legally that is correct,

Whether it will or not remains to be seen.

QUESTION.

What will b e done legally?

\
j

i
SECRETARY SIMON: It can for the benefit of the

j

developing countries; gold can b e sold without any amendments
!

to the articles.
19
QUESTION:

{
I
M r . Secretary, my name is Evelyn Y. Davis, j

I am editor of Highlights and Lowlights of Annual Meetings

;
i
i

from New York City.

I am known as the nation's leading

j

22
minority stockholder.

I am also a city of New York bondholder. j

n in the last few w e e k s , naturally, myself and thousands of other •
bondholders have been concerned about the situation in New York. 1
viz.

i{
W h a t a d v i c e d o y o u h a v e to g i v e u s ?
il
| SECRETARY SIMON: Let me say, Miss Davis, I am also
1 concerned about New York City and hopeful the necessary
li actions are going to be taken by the State and the City that
J are going to prevent a default of New York City obligations,
]

m

jj which I consider to be a very bad idea, to put it mildly.

. i

Now, as to advice, I don't think it is really the
function of the chief financial officer to give advice to
bondholders. All X can say is I am sure if these actions
were
taken by New York City, by New York State, the necessary
*.® i
actions, they ara going to restore the financial credibility
i to this city. It will again regain access to the capital
markets, the bondholders can rest assured their coupons will
be
u paid on time as they have always been in the past.
But this is what must be done. They must place a
credible program before the investors in this country, you
3&

and thousands of other investors that own them. New York City
obligations, and convince them of their fiscal integrity.
QUESTION^ Is there anything to what the City
SJ

Corporation Counsel was talking about, the employees of th*
city will get paid before the bondholders, which is a direct
! violation of the Constitution of the bonds which says the
12 jj
', bondholders have first daim to the full access of the city —
til :

ii
I
i

SECRETARY SIMON:

T h a t xs my u n d e r s t a n d i n g ,

b o n d h o l d e r s d o h a v e t h e first p o s i t i o n .

the

6

QUESTION:

&

u

Does the Treasury know anything about
I
J

this?

I
SECRETARY SIMON: The Treasury has no legal ability
to do anything about it* I would assume there would be

j
f

bondholders' suits if indeed the funds were attempted to be
diverted to other than constitutional uses.
QUESTION:
years —

The taxes I have been paying over the

you are welcome to look at my tax returns.

I don't

believe the city is broke at ail.
v

SECRETARY SIMON:
QUESTION:

Thank you, Miss Davis.

A Paris communique mentioned the possibility

to work with the gold substitution account.
that around here today.

We haven't heard

Is that going forward or will it

provide a means for a study of the gold?
SECRETARY SIMON:

They will continue to study the

1
i

substitution of the hold, the substitution account, as we
decided at the June Interim Committee meeting.

I don't wish to ]
I
pre-judge the outcome of the study, and how it would affect, but j
s
I see no way it would conflict with the arrangements that we
J
have agreed to over the weekend.
i

QUESTION:

Mr. Secretary, do the agreements reached

have any significance or importance in terms of this nation's
economic problems of recessbn and inflation, and if so, would
you address yourself to those?
SECRETARY SIMON:

I would not say they have any

direct bearing on the present p r o b l e m s , the economic problems

! 'I
|| of any o f the countries of the w o r l d .

Certainly a smooth

2 ii
j functioning international monetary system is important to all
of the world's economies. I think there also is a
psychological and confidence factor involved. We have been
negotiating these very difficult areas for almost four years
now.

I have felt, on the confidence factor, that the people

around the world might begin to question the ability o f

j

governments in general and finance ministers in particular to

i

arrive at and make the necessary concessions, difficult

;

i
it

compromises, political decisions, as well as financial and

!

economic decisions necessary to arrive at a package that

I

represents the compromises for all* that w i l l be beneficial

n

for everyone.

14

A s far as the immediate recession and inflation,
none of these arrangements w i l l directly affect that,
except to ameliorate the effects of deepening the recession on

S7

the most serious affected nations in some areas.
QUESTION:

M r . Secretary, did I understand you to say

|| the Treasury wouldnot sell gold while the IMF is selling its
gold?
SECRETARY SIMON:
U

I said it depends, Bart, completely

on <what is going on in the marketplace and what the demand

23 I factors are in the marketplace at that time.

I could envisage,

if the IMF were in the process of disposing of a certain amount

P

ft

i!
• ' of its gold in the marketplace, the Treasury would refrain at
0 that time from disposing of its own gold. Just to maintain,
3 I said, orderly markets.
as
QUESTION: Inasmuch as the IMF process might take
two or thr^e years, we haven't been told how long, does that
#

mean the Treasury might conceivably be out of tie market
for that length of time?
SECRETARY SIMON: No, it doesn't, because it is
9
unclear
yet. This will unfold over the coming months, exactly
10 the IMF would dispose of the gold, whether initially
how
it
1! will sell gold to the central banks around the world. That
12 part of the global limit, you know, that has been set on
is
13 holdings, which is one of the safeguards we have
gold
negotiated.
QUESTION: Mr. Simon, Dr. Wittftveen specifically
named the United States as one of the three strong countries
which would afford to do something to get trade moving — the
other two have told us they think they have done enough. Jr.
Witteveen has also cited fiscal methods which would appear to
take the problem away from Mr. Burns and put it towards you.
What is your response in view of the size of the deficit?
SECRETARY
SIMON: My response in view of the size
12
of the deficit in this country is predictable. We believe
we have taken adequate measure to protect our economy in
;$ Jj coopar^afririn unrh^Arthur Burns, the Federal Reserve Board,

&

j their expansionary economic policies so far this year*

We

have a deficit of §60 billion, but it is still unclear, and
Congressional actions and inactions w i l l determine what that
deficit w i l l b e .
We have presented a mid-session review of the budget
about a month a g o .

Jim Lynn, and I, and it illustrates very

eloquently the size o f our deficits, n o t only this y e a r but in
the fiscal y e a r 1977 and beyond.
have not done enough.
QUESTION:
ii

*$y concern is not that we

My concern is have w e done too much.
M r . Secretary, y o u are against fixed

exchange rates and y o u are against gold in the monetary system.
What foundation do y o u expect ~
SECRETARY SIMON:
I believe, to that issue.

discipline —

(inaudible)

In my speech today, I direct myself,
You know, it is not William Simon

who is opposed to gold in the central system.

This was a

general agreement among the Finance Ministers of the world
over the past four y e a r s .

They have agreed to phase out this

commodity from the center of the system, recognizing the world
today we live in versus the world when that system was designed.
What is the foundation of a stable currency?

A

sound, durable, non-inflationary economy at home is what
22

the basic foundation of a sound currency i s , and I think that
is illustrated in the recent strengthening of our dollar in
the world markets as a result of our being able to begin
to win —

I sav begin, w® won a battle, n o t the war -- our

10
battle against inflation.
QUESTION:

M r . Secretary, are you comfortable with

the statements made yesterday on Secretary Kissinger's behalf
concerning attempts to negotiate monetary agreements intended
to stabilize prices of those commodities in international
markets?
SECRETARY SIMON: Yes, I am. Just a word of background
on that, because lots is often written about economic policy
of the State Department, and the Treasury Department.
Let's understand one thing. I saw by the New York
10
11
12
13

Times this morning, Leonard Silk treated this in a very
even-handed factual manner* foreign policy and economic policy
have different objectives and they are going to be necessarily
Conflicting views If there were not conflicting views, one
of us would not be doing our job properly in designing

15

initiatives consistent with our free market principles in the
United States, which remain our fundamental principles.
We have to resolve these differences and make
concessions, never against the free market principles that
we adhere to, and we have done this.

20
£1

n

Henry and I worked very closely in developing these
initiatives, and the State Department and we agree that the
tin agreement and the other agreements we are studying on
a case by case basis, we believe this tin agreement does not
interfere with our free market forces nor is it joining a

}

11
cartel.

•I
4
5

A cartel is a group of producer countries that rig

the prices o f a commodity.

3 1 as

1S9

This agreement includes consumers

well as p r o d u c e r s , w i t h a buffer stock arrangement to assure

adequate supply during periods of shortage.
QUESTION:

The IMF did some, but most of the burden

«

of payments financing has been on the shoulder of the American

7

banking establishment, so with the phasing out of the gold
if there is n o SDR in the central system, w i l l n e t the burden
be too heavy for the governments

DO
11

SECRETARY SIMON:

—

The SDR is the center of the system.

We want to strengthen the SDR.

W e are all agreed upon trat.

12

N o w w h a t was the first part of your question?

13

QUESTION:

(inaudible) —

the question, the financing

burden for the American banking system.
15

SECRETARY SIMON:

I don't consider the recycling

process as a burden on the dollar.
17

If it were a burden on

the dollar, the dollar would not b e , in my judgment, increasing
in value as it h a s .

T h e private financial markets have, as

we have maintained for the past year, done a magnificant
job, in bearing the burden of most of the recycling.
SI

Simultaneously, w e have established mechanisms that
would smooth out this flow and I look forward to continued
smooth markets in the international financial markets.

Our

Si problem in respect t o the oil price area is n o t the financial
problem, it is the economic and p o l i t i c a l .

^

12
QUESTION:

JW

Mr. Secretary, if a number of key third

party countries have coxae here specifically for the purpose
3

of scraping up immediate short term public or private

4

credit to finance vital food imports, specifically Argentina

5

and Egypt, now the next major step according to a number of

e

thes&

7

hundred million dollars for imports, then the next step will be

3

a default, a declaration, what is the possibility of avoiding

countries is that they cannot scrape up just a few

a revolt of the slaves?
SECRETARY SIMON:

A revolt of the slaves?

not agree with that comment at all.

I

11

certainly would

I think

VI

tli® United States approach €o the developing countries has
been extremely forthcoming, not just in the initiatives that

u

Henry and I, yesterday and today, have announced but also
during the past 25 years, or 30 years since World War II.
We
selves.

continue to wish to help these nations help them-

In the final analysis, their prosperity is

dependent on how they use their resources and the domestic
policies that they promote to achieve the permanent increase
in the standards of living for all of their peoples that all
of them desire*
I don't anticipate a so-called revolt.

I think

they recognize we, the industrialized world, are sincerely
trying to

help them.
QUESTION:

Sir, you said here today you think we

13

£<//

* jihava done enough to inflate our economy this year, what
2 I about next year and the tax cut being extended?
SECRETARY SIMON:
expandionary measures.

I would not pre-judge any further

If they are needed we will take them.

If an extension of the tax reduction is required, as I have
said h the past, I would recommend to the President that it be

i
7 ] extended, but it is pretty much hard to judge that at this
a S&time. With the revised figures on our GNP for the second
quarter which show a positive 1.6 per cent real growth.

We

expect w© are going to h a w significant growth in the third and
fourth quarters in 1976. We believe we have had adequate
expansion in this country.
What we must do now is attempt to manage this
recovery so we do not have a resurgence of the inflationary
m

pressure which is our true long-term enemy.
QUESTION:

Mr. Secretary, when the Committee of 20

n

I met last January, the only topic worth speaking of was the

H

I so-called Kissinger Safety Net. Nobody speaks about it

«9 j now. Do you think it is still useful?
•i
^ |
SECRETARY SIW3N: Of course it is still useful.
31 I The Financial Support Fund is a needed safety net, a lender of
n

last resort, that is going through the various legislative
i!
processes in the countries in the world who have agreed to
join this insurance mechanism.

I am optimistic we are goint

I
23 Jjtolmva early Congressional approval.

1 4

^

Yes, it aaost certainly is still needed.
2

QUESTION:

Mr. Secretary, in regard to a response

a minute ago on that third world question, how do you explain
what is your response to the criticism contained in the
communique by the third world on the arrangements on gold?
SECRETARY SIMON:

People always want more.

Here

again, attempting to design agreements and reach complete
100 per cent agreement on every one of these issues is going
to be impossible.

That is what compromise is. We think this

compromise that was worked out is fair.
QUESTION:

Mr. Secretary, according to the main

Treasury bulletin, the United States commercial banks have
about $20 billion worth of short-term debt outstanding to
third world countries; another $10 to $15 billion of such
debt can be calculated to be outstanding to such countries on
the Euro-dollar market, almost all of this debt was issues
since the oil market and since the 1974 drop in commodity price
to finance the huge third world balance of payments, deficits
now running $40 billion a year —

most commercial bankers

note the repayment of such debts is well nigh impossible, at
!>t jj least half of this debt is right new being rolled over on tec?
$2 j Euro-dollar market and the implication of maintenance of such

i
t-i j debts is expected to reduce third world imports by a nuii-bsar cf
M !• UN experts, by approximately 50 per cent by the end of the
year.

The two pert question I have on this is first of all,
has the Treasury anticipated the effect of this short term
third world debt on international trade and secondly, has it
anticipated the effect of a moratorium on this debt, most of
which is considered by commercial bankers to be well nigh
unpayable on the U. S* commercial banking system?
SECRETARY SIMON: I don't subscribe to that notion

t
that it is well nigh unpayable* That is not clear to any
i
one. It seems we succumb so often, an we ha-sns in the past j

\

\

two years, to the Calamity Janes in this world on almost j
I
any subject without taking any balanced measured judgment of i
!

what some of the alternatives are. We have very competant
and active bank regulatory mechanisms here in the United j

j

States, the Comptroller of the Currency and a Federal Reserve i
System. I do not anticipate any financial problems as a J
?
\

result of what you describe* No, X do not.
Now, as far as debt rescheduling, we will approach

j

rescheduling on a case by case basis. Thus far we have not «
seen any evidence of this'problem of the magnitude that j
»

you describe, j
1
QUESTION: Th« figures mentioned by Secretary \
Moynihan on the trust fund are significantly larger than
mentioned by Dr. Wifcteveen. What is the United States seeking j
there and what kind of lick have you had in conversations \
H

with your colleagues frost overseas?

§
f |

^>:CRBTARY

S1K09:

l thiiik since we proposed ths

it;

I jl trust fund concept a year ago, we have had general agreement

1
I | among the countries of the world on the concept. As far as
4 what the exact aiaomit will turn out to be it depends on the
negotiations t&a-j; proceed from here.
QUESTION: On the remaining issue of exchange :^3s,
which you feel will be resolved by January, would you
elaborate a bit on what you consider to be the minimum
conditions for settlement of this issue?
SECRETARY SIMON: I think there are probably a
couple of minimum conditions. One, we have to recognize the

n

world we are in today, the present ARticles of Agreement state
that par values must be maintained, but that is not happening
in today's world.
There is a view that this living in sin as far as the j
present Artciles of Agraeisent must be addressed. We feel, |

I
and so does our Congress, that the freadosa by any country to
\

have floating rates must also be recognized in the new

Ltt

amendments
and we ara going to attempt to agree on words to j
tit
do this. ]
i

The Congress has be&n very clear in its attitude on

S1

this, relative to its agreement on quotas, gold, end othei
suggestions wa send up with that.
m

» QUESTION: Can you explain in more detail how the
i

a icommodity financing :Cheav; -- (inaudible)

\
5

17
1

| QUESTION: Would you repeat the question, Mr.

Secretary?
SECRETARY SIMOH: Explain commodity financing
*agreements

•

We do not have all of the specifics on all of the
commodity financing agreements. We do not wish to attempt
to impose all of the specifics of our ideas upon the rest
| of the world. W& have ideas based around broad concepts in
the area of commodities. Let us get together now and work out
all of the details of these issues. The specifics will become
apparent to all over the next couple of months.
•2One

more.

QUESTION? Mr. Secretary, is it correct to say the
American position on the exchange rate indicated tha- you j
believe — in your position on exchange rates, is it correct I'
\
i

to assume that you view currencies as nothing more or less I
17
than commodities, subject to the forces of the marketplace?

SECRETARY SIMON: So, I would not go that far. But j
I believe currencies certainly are subject to the free force:;
If
of markets. If one attempts to peg the rate at aa \
!

artificial level, ultimately, as we have seen so often during
the
*< /.

current crises during the last five years of the Bret :on j

Woods system, devaluations, and revaluations occur, in |

U recognition of whai the market forces are dictating on the
jj exchange rate.

!

If

W& thirik the new flexible system, the voluntary

ll
4 system we have now, recogniz s this fact.

Minimal changer*

*
it

f| over short periods of time are less disruptive than the
4
I jj abrupt market closings, ate, that we had in the five years
if
3 ji that preceded th-n end of the Bretton Woods agreement.
3 h
Again, I discuss this in my speech* Copies are
W

7 | available in the rear of the room, embargoed for 11 o'clock.
it
f? U

-• .v\-..UUK

5*

' OiA
*~

(Whereupon, at 8:40 a.m., the press c o n i r e ^ c
was concluded.)
+ + +

5I

" i
tti

1

'
<Jt

FOR. RELEASE AT 9:00 A.M., EDT
WEDNESDAY, SEPTEMBER 3, 1975
MEMORANDUM TO THE PRESS
Attached for your information is a discussion
draft of proposed amendments to the income tax regulations respecting the taxability of fringe benefits,
which the Treasury Department sent to the Federal
Register September 2, 1975.
These amendments are being released as a discussion draft rather than as a formal notice of proposed
amendments in order to provide an opportunity for review and comment by all interested parties, including
the tax writing committees of Congress.
An explanation of the considerations underlying
the precedents and the proposed rules is also attached
in the hope that it will assist in focusing public
discussion.
September 2, 1975

J"?
DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
[26 CFR PART I]
INCOME TAX
Fringe Benefits; Notice of
Publication of Discussion Draft of Regulations

Notice is hereby given that the Department of the Treasury is currently
considering proposed amended regulations prescribing standards for determining whether incidental facilities, goods and services benefiting employees,
commonly referred to as fringe benefits, result in compensation includible
in gross income. The proposed regulations are set forth below in discussion
draft form.
The Internal Revenue Code does not provide specific rules for determining which economic benefits provided to employees by their employers are
required to be included in gross income. Administrative practice over the
years has permitted certain items to be excluded from the employees' income.
The need to provide guidance for all taxpayers has been apparent for some
time. Before publishing a notice of proposed rulemaking, the Department of
the Treasury is publishing the attached discussion draft to provide an
opportunity for review and comment by all interested parties, including the
tax writing committees of Congress.
Consideration will be given to any comments or suggestions with
respect to the provisions contained in the discussion draft. Such comments
or suggestions should be submitted in writing (preferably in duplicate) to

^

- 2 -

the Office of the Assistant Secretary of the Treasury for Tax Policy,
Washington, D.C, 20220, with copies (preferably four) sent to the
Commissioner of Internal Revenue, Attention: CC:LR:T, Washington, D C.
20224, within the period of 60 days from the date of publication of this
notice in the Federal Register.
Designations of material as confidential or not to be disclosed,
contained in such comments, will not be accepted. Thus, a person submitting written comments should not include therein material that he considers to be confidential or inappropriate for disclosure to the public. It
will be presumed that every written comment submitted in response to this
notice is intended by the person submitting it to be subject in its entirety
to public inspection and copying in accordance with the same procedures as
are prescribed in 26 CFR 601.702(d)(9) for public inspection and copying of
written comments received in response to a notice of proposed rulemaking.

Assistant Secretary for Tax Policy

APPENDIX (DISCUSSION DRAFT OF

PROPOSED REGULATIONS)

TITLE 26--INTERNAL R E V E N U E
CHAPTER I--INTERNAL REVENUE SERVICE
D E P A R T M E N T OF THE TREASURY
SUBCHAPTER A--INCOME TAX
[INCOME TAX REGULATIONS]
PART I--INCOME TAX; TAXABLE YEARS BEGINNING
A F T E R D E C E M B E R 31, 1953
Incidental Facilities, Goods, and Services
Benefiting Employees
DEPARTMENT OF THE TREASURY,
Office of Commissioner of Internal Revenue
Washington, D.C. 20024
TO OFFICERS AND EMPLOYEES OF
THE INTERNAL. R E V E N U E SERVICE
A N D OTHERS CONCERNED:
Preamble
This document contains proposed amendments to the Income Tax
Regulations (26CFR Part 1) prescribing rules to determine whether

or not incidental facilities, goods, and services benefiting employ
result in compensation includible in gross income. These benefits
commonly are referred to as fringe benefits.

- 2Some fringe benefits, such as the provision of health insurance
by an employer for his employees, are excluded expressly from gross
income by statute. The status of most other fringe benefits is not
answered expressly by statute. The amendments to the regulations
prescribe rules to determine whether or not these fringe benefits
constitute compensation includible in gross income.
The general rule of the proposed amendments permits an employer
to share with its employees benefits arising from its business where
the employer incurs no additional cost. To prevent abuse, the general
rule does not apply to fringe benefits that are available only to the
most highly compensated employees. An example covered by the general
rule is the stand-by travel privileges accorded to flight attendants
by commercial airlines.
Failure of a benefit to qualify under the general rule does not
automatically mean that the benefit results in taxable income. In all
cases where the requirement of the general rule is not met the fringe
benefits must be examined more closely to determine whether or not

the benefit derived is taxable as compensation. Under the proposed amendments where the benefit provided by an item is so small as to make
accounting for it unreasonable or administratively impractical, there is
no taxable compensation. This de minimis exception applies, for example,
to an employee having his secretary type a personal letter.

X<r3
- 3Where a fringe benefit does not meet all of the tests of the general
rule and it is too significant to be ignored under the de minimis

exception, whether or not the benefit conferred constitutes compensation

includible in gross income is determined on the basis of all the relevan
facts and circumstances. The proposed amendments set out nine of the
factors to be taken into consideration. Among these factors are: (i)

whether or not the employer incurs a substantial and identifiable additi
cost, (ii) whether or not the benefit is reimbursement of an unusually
large expense of the employee incurred on account of his employment,
(iii) whether or not the benefit is provided to employees in a way that

does not discriminate in favor of the most highly compensated employees,
and (iv) the relationship of the expense to the employers' business.
Where a fringe benefit is determined to result in compensation
includible in gross income, the amount of compensation is the
fair market value of the benefit. This is the amount that the
employee would have to pay on an arm's-length basis for the benefit
or its equivalent.
Among the examples included in the proposed amendments applying
the facts and circumstances test is an executive who has a company jet

make a special trip to enable him and his wife to shop and attend a play
in another city. The executive is held taxable on an amount equal to
the cost of chartering an equivalent plane to make the trip. Another

- 4example states that an employee does not have gross income where his
employer provides him with protection in response to threats made by
terrorists alleging that the employer has exploited the terrorists'
country.
A number of examples deal with the use of an automobile
furnished by the employer. One example holds that a fire chief
does not have compensation from the use of a car to enable him to go
on short notice to the scene of major fires. Another example holds
that the use of a government automobile by a United States ambassador
to travel to and from work, as permitted by Federal statutes regulating
the use of official vehicles, does not result in gross income. There
also is an example holding that providing a chauffeur-driven
car to take a top executive of a corporation to and from work results
in compensation, but that use of the car to take the executive from
his office to business appointments does not result in compensaiion.
Proposed amendments to the regulations.
In order to provide rules relating to whether or not incidental
facilities, goods, and services benefiting employees result in gross
income to the employees, the Income Tax Regulations (26 CFR PART I)
are amended as follows:
Paragraph 1. Immediately after section 1. 61-15 there is added
the following new section:

4rs
- 51.61-16 Incidental facilities, goods, and services benefiting
employees.
(a) In general. Where an employer makes available to its employees
generally facilities, goods, or services that exist incidentally to its trade
or business, the resulting benefits to employees, their immediate families,
or guests accompanying the employees shall not be treated as compensation includible in gross income under the following circumstances:
(1) The facilities, goods, or services are owned by or under
the control of the employer for purposes proper to the conduct
of the trade or business involved and are primarily unrelated to the
personal use or consumption of such items by employees of the
employer,
(2) The facilities, goods, or services are made available to
employees under terms and conditions such that the employer
incurs no substantial additional cost in making them so available,
and
(3) The facilities, goods, or services are made available to
employees generally or to reasonable classifications of
employees determined, for example, on the basis of the nature
of their work, seniority, or similar factors (but not including
classifications primarily including only the most highly compensated
employees).
The extension under like circumstances of similar privileges by an
employer to individuals who are employees of another employer in the
same or a related trade or business shall not be included in the income
of such individuals or their employer.

- 6(b) Other benefits. Where facilities, goods, or services are
made available under circumstances that do not meet the requirements

of paragraph (a), whether or not the benefit conferred constitutes compe

sation includible in gross income will be determined on the basis of all
the facts and circumstances. The following factors, among others,
shall be considered where present. The presence of one or more of them
wili not necessarily be controlling, but will be a fact tending to
indicate that the benefit does not constitute compensation includible
in gross income.
(1) The cost incurred by the employer in providing the
benefit is not identifiable or is not significant in relation
to the fair market value of the benefit received by the
employee.
(2) The personal use occurs during, immediately before, or
immediately after working hours at or near the business premises
of the employer and has a proximate relation to work performed
by the employee.
(3) The benefit is provided to employees generally or to
reasonable.classifications of employees determined, for example,
on the basis of the nature of their work, seniority, or similar factors
(but not including classifications primarily including only the most
highly compensated employees).
(4) The benefit is similar to a service or other benefit which is
commonly provided by state or local governments in the United
States, but which is not readily available to the employees because
of the location of their employment.

P1
- 7(5) The benefit accommodates an important requirement of the
employer or relieves the employer of significant expense or
inconvenience.
(6) The benefit is reimbursement of a greater than usual item of
expense which was incurred by the employee for a purpose normally
thought primarily personal but which was incurred because a business
requirement of the employer prevented the employee from obtaining
the item in the ordinary manner.
(7) The benefit is provided primarily to insure the employee's
safety by protecting against a significant risk arising from the
employment relation.
(8) The benefit is not a substantial amount absolutely or in
comparison to the employee's stated compensation.
(9) The item generally is not thought of as constituting
compensation includible in gross income.
The failure of a benefit to qualify under one or more of the above
factors, in appropriate cases, may be a fact tending to indicate that
it does constitute compensation includible in gross income.
(c) De minimis exception. The provision of facilities, goods, or
services shall not be deemed to give rise to compensation includible
in gross income when the amount of such item is so small as to make
accounting for it unreasonable or administratively impractical.

2*
- 8 -

(d) Amount of income. If it is determined that an item is conpemsation includible in an employee's gross income, then the amount
included in gross income is the fair market value of the item, which
is the amount that the employee would have had to pay, on an arm's -

length basis, to obtain use or possession of equivalent facilities, goo
or services.
(e) Definition. For purposes of this section the term "employee"

includes self-employed individuals, independent contractors, and office
of a corporation, but does not include shareholders of a corporation
as such.
(f) Examples.

The principles of this section are illustrated by

the following examples.
Example (1). Flight attendants for a commercial airline are
permitted to make a specified number of trips each year at no cost.
The number of trips allowed each flight attendant depends upon the
length of time each flight attendant has been an employee of the
airline. A flight attendant must have been an employee for at least

six months before being eligible to take any such flight. Flight attend
may travel to any destination served by the employer airline or by
any airlines with which the employer has reciprocal arrangments.
Trips are permitted only on a space available basis and do not
result in loss of revenue to the airline. The trips taken by a flight
attendant on the employer airline, or on another airline with which
the employer has a reciprocal arrangement, qualify under paragraph (a)

- 9and are not compensation includible in gross income because the flights

on which the flight attendant travels are a part of the airline's regula
business and are primarily unrelated to personal use by employees, the
employer incurs no substantial additional cost, and the classification
of employees by their function as flight attendants and sub-classification by seniority is a reasonable method of classification.
Example (2). A commercial airline encourages bona fide travel
agents to take a reasonable number of trips each year on a stand-by
basis at a nominal price. The purpose of making the travel privileges

available to the travel agents is to familiarize them with the airline's
services and with the attractions at destinations served by the airline,
and thus to increase the likelihood that they will arrange for their
customers' travel using services provided by the airline. The
business of travel agents is related to that of the airline. The
extension of transportation to a travel agent for a nominal price
qualifies under paragraph (a) for the reasons given in Example (1)
regarding the similar benefit made available to a flight attendant.
Example (3). A retail store allows its employees with at least
six months' service a discount on purchases made at the store.
The price of merchandise net of the discount to the employees is not
less than the wholesale price of the merchandise. The benefits
received by an employee may qualify under the de minimis exception
of paragraph (c). Even if they do not so qualify, the merchandise

discounts do qualify under paragraph (a) because the merchandise is
from normal inventory, the employer merely forgoes additional income
and does not incur any significant additional costs, and the discount
is generally available to all employees. An employee does not realize
compensation includible in gross income by reason of the discount.
Example (4). An interior decorator purchases furniture for her
own home at the wholesale price generally charged interior decorators
by the manufacturer. The business of the interior decorator is related
to that of the furniture manufacturer. The lower price to the interior
decorator does not result in compensation includible in gross income
under paragraph (a) for the reasons given in Example (3) regarding
similar benefits to employees of a retail store.
Example (5). (a) An executive of a company and his wife travel
in a company-owned plane to City A to shop and attend the theater.
The plane otherwise would not have made the flights. The executive
works during the flights to and from City A. Company policy allows top
executives to use its planes for such personal trips. The use of the

company plane does not qualify under paragraph (a) because the employer
incurred substantial additional cost and because such use of company
planes is restricted to top executives. Under paragraph (b) the most

important relevant factors are the large identifiable costs incurred by
employer, the absence of a proximate relationship of the trip to the
executive's employment, and the limitation of the use of the company
planes to top executives. The executive has compensation includible

-11 in gross income. Since the company plane made the trip solely for
the benefit of the executive and his wife, the amount of gross income
is the cost of chartering the same or an equivalent plane for the
round trip to City A.
(b) The executive's secretary accompanied him on the trip to City
A to take dictation and perform other secretarial duties during the
flight. Since the secretary's primary purpose of traveling to City A
was to be available to the executive, the incidental personal pleasure
which she derives from the travel qualifies under the de minimis
exception of paragraph (c). The secretary's travel also qualifies
under paragraph (a) because the use of the plane to transport the
secretary to City A was proper to the secretary's employment as the
executive's personal secretary, the employer incurred no substantial

additional cost in her traveling, and the availability of such travel t
the secretary under such circumstances constitutes a reasonable
classification because of the nature of her duties. The Secretary
has no compensation includible in gross income as a result of
traveling to City A.
(c) The secretary's mother also accompanied her on the trip
at no additional cost to the company. Since the travel did not
Constitute compensation includible in gross income to the secretary
under paragraph (a), the same benefit extended to her mother, as a
member of her immediate family, did not constitute compensation
includible in income to anyone.

- 12 -

^^^

Example (6). A company executive travels to City B on a
company-owned plane to attend a two-day trade convention important
to the business of the company. At his invitation he is accompanied
by his wife and daughter and the president of a college located in the
same community as the company. The wife, daughter, and college
president occupy seats on the plane that otherwise would have gone
unused. The wife, daughter, and the college president do not
attend the trade convention. Under paragraph (a) transportation
furnished to the wife, daughter, and college president do not
constitute compensation includible in gross income to anyone because
under paragraph (a) the flight to City B was primarily for a business
purpose and was primarily unrelated to the personal enjoyment of the
executive, the furnishing of transportaion to additional persons did
not entail any substantial additional expense to the company, and the
extension of the privilege of inviting guests to those classes of
employees who are themselves traveling for a proper purpose of the
employer is a reasonable classification. The furnishing of transportation
to the wife, daughter, and college president does not constitute compensation
includible in gross income.
Example (7). A company's plant is located in an area which
is unsafe at night and in which there is not suitable public transportation available to employees leaving work between midnight and 6 a.m.
An employee finishing work at 2 a.m. is reimbursed exactly for taxi
fare home under a general policy extending taxi service or
reimbursement to all employees finishing work between midnight
and 6 a.m.

Employees who drive their own automobiles may park in a

protected area, but are not paid for taxi service not used.

3L3
- 13 The furnishing of taxi fare at night does not qualify under paragraph (a)
because the employer incurs substantial additional cost in furnishing
it. Under paragraph (b) the most important relevant factors are the
exact reimbursement of a greater than usual expense incurred by an
employee who would ride mass public transportation if it were
available, the safety factor, and the general availability of the taxi
fare to similarly situated employees. The taxi fare reimbursement
does not constitute compensation includible in gross income.
Example (8). A.n accounting firm reimburses an employee the exact
amount the employee spends on dinner and on taxi fare home where the
employee works several hours beyond his normal quitting time because
of the press of the employer's business. The reimbursement does not qualify
under paragraph (a) because the employer incurs substantial additional
expense. Under paragraph (b) the most important relevant factors
are the exact reimbursement of a greater than usual expense incurred
by the employee, the accommodation of an important business requirement
of the employer, and the proximate relation of the reimbursement to the
overtime period. The reimbursement does not constitute compensation
includible in gross income to the employee.
Example (9). A company provides a chauffeur-driven automobile
to and from work for each of its top executives. The cars also are
available to the executives for trips to and from business appointments.
The furnishing of such service to the executives does not qualify under
paragraph (a) because the cars and chauffeurs are not primarily

- 14 -

JW

unrelated to the personal use by the executives, the employer incurs
substantial additional cost, and the service is limited to the highest
paid executives. Under paragraph (b) the most important relevant
factors are the limitation of the chauffeur service to the top

executives, the proximate relation of the transportation to the executiv
work, and the accommodation of the needs of the employer. In this case
a distinction must be made between providing transportation to and
from work, which is a personal commuting expense, and transportation
to and from business appointments, which is a business expense.
The former constitutes compensation includible in gross income while
the latter does not. The amount of compensation realized by the
executives is the cost of obtaining the same or equivalent chauffeur
service to and from work on an arm's-length basis.
Example (10). A company's headquarters are in an office building
which it owns in the downtown area of a large city. The building
has garage space in the basement that is used for deliveries and guest
parking. A limited number of spaces also are available for parking by
the company's employees. In allotting those spaces among its employees,
the company gives preference to those employees whose duties
require them to work irregular hours, who frequently use their cars
for business purposes during the day, and, other things being equal,
to employees with seniority. These criteria, in fact, result in most
of the spaces being alloted to executives, but spaces also are provided
to others who meet the criteria and are not available to executives who

do not meet the criteria.

The employer incurred a substantial additional

cost in acquiring the parking facility and incurs continuing substantial
additional costs in maintaining and operating the facility. Because the
parking spaces are assigned to employees on a guaranteed basis, the
use by the employees preempts other potential uses. Accordingly, the
use of a parking space does not qualify under paragraph (a) because
the employer incurs substantial additional cost. Under paragraph (b)
the most important relevant factors are the availability of the
parking in the employer's building during working hours, the reasonbleness of the classification, and the accommodation of the employer's
important requirement that the employees using the parking facilities
be readily available0 The employees using the parking facility do not
have compensation includible in gross income.
Example (11). United States ambassadors are furnished an
official vehicle and driver. An ambassador uses his car on official
business and for commuting from his residence to the embassy.
Federal laws governing the use of funds appropriated for Executive

departments and agencies prohibit the use of appropriated funds to opera
and maintain any Government-owned automobile that is not used
exclusively for official purposes. Under these provisions, official

purposes does not, with limited exceptions, include transporting a govern
ment employee to and from work. An employee who willfully uses, or
authorizes the use of, a government vehicle for such transportation may
suspended from employment or, if the circumstances warrant, summarily
removed from office. However, these prohibitory provisions do not

9
- 16 apply to vehicles for official use of the President, the heads of certain
enumerated executive departments, ambassadors, minister, charges
d'affaires, and other principal diplomatic and consular officials. The
providing of an official vehicle and driver to ambassadors does not
qualify under paragraph (a) because the vehicles and drivers are not
primarily unrelated to the personal use by the executive, the employer
incurs substantial additional cost, and the benefit is limited to the
most highly compensated officials. Under paragraph (b) the most
important relevant factor is the finding by Congress, implicit in the
provisions regulating use of appropriated funds, that the official duties
of certain federal employees require that they be on call at all times
and have the use of an official vehicle for transportation to and from
work. Depending on the circumstances provision of an official vehicle
and driver also may protect the ambassador from a danger arising
from the employment relationship. See examples (7) and (13). The use
of the official vehicle and driver by the ambassador does not constitute
compensation includible in gross income.
Example (12). The fire chief of City C is required to be available
by telephone at all times and to be able to go on short notice to the
scene of major fires. The city provides a car and driver
which is available at all times. The fire chief occasionally
uses the car for nonbusiness purposes. The providing of the
car and driver to the fire chief does not qualify under paragraph
(a) because it requires substantial additional expenses by the employer.

- 17 Under paragraph (b) the most important relevant factors are the proximate
relation of the car and driver to the fire chief's duty to supervise
personally fighting of all major fires and the accommodation of the
employer's requirement that the fire chief be readily available for this
duty. The use of the car and driver by the fire chief to go to fires does
not constitute compensation includible in gross income. The occasional
personal use of the car and driver by the fire chief qualifies under the
de minimis exception of paragraph (c) and does not constitute compensation
includible in gross income.
Example (13). The president of a multi-national corporation is
threatened by an organization of political extremists in a foreign country
who allege that the corporation has exploited their country. The corporation provides bodyguards for the president and his immediate family.
The protection does not qualify under paragraph (a) because it requires
substantial additional expense by the employer. The most important
relevant factor under paragraph (b) is providing for protection of the
executive and his family from a danger arising from the employment
relationship. The protection does not result in compensation includible
in gross income.
Example (14). An automobile agency furnishes cars to its employees
as "demonstrators" without charge. The employees use the automobiles
primarily for personal use. Because of such use the employer receives
a reduced price when the demonstrators are sold. The furnishing
of the automobiles does not qualify under paragraph (a) because the
employer incurs substantial additional cost. Under paragraph

- 18 -

"

(b) the most important relevant factors are the significant cost incurred
by the employer and the absence of a proximate relation of the furnishing
of the automobiles to the employees' employment. The employees each
have compensation includible in gross income in an amount equal to
the cost of leasing the same model automobile in an arm's-length
transaction.
Example (15). An employer furnishes automobiles to all 30 of its
outside traveling salesmen who are away from home an average of four
days a week. The company permits the employees to keep the cars over
weekends and to use them for personal purposes, provided that they pay
for all gasoline they consume for personal use. The employer does
not incur any substantial and identifiable cost to maintain and operate
the cars because of the personal use of them by the employees. When
the employer trades in the fleet of automobiles used by the salesmen,
personal use of the cars does not materially affect the price it is able
to obtain. The furnishing of the automobiles qualifies under paragraph
(a) because the use of the automobiles is proximately related to the
employer's business and the personal use by the employees is not the
primary purpose for their acquisition, the employer incurs no substantial
additional cost, and providing the benefit for a class consisting of all
the outside traveling salesmen is a reasonable classification. The use
of the automobiles by the salesmen does not result in compensation
includible in gross income.

- 19 Example (16). An employee occasionally has his secretary
type a personal letter and make a copy of it for his records on

his employer's electric copying machine. The personal use of the secret
and the copying machine qualifies under the de minimis exception of
paragraph (c) and does not result in compensation includible in gross
income.
Example (17). A law firm pays bar association dues of lawyers
employed by it. The firm also has a monthly cocktail party for all
attorneys and paralegal personnel and has an annual golf, tennis, and
swimming outing at a country club.
(a) The payment of bar association dues may qualify under the
de minimis exception of paragraph (c). If the amount paid by the
employer on behalf of each attorney is a substantial additional cost,
then paragraphs (a) and (c) will not apply. For purposes of paragraph

(b) the most important relevant factors are the proximate relation of t

bar association dues to the practice of law, the general availability o
the dues reimbursement to all employed attorneys, and the employer's

interest in having its attorneys participate in local bar associations.
No compensation includible in gross income results from the payment of
the dues.
(b) The monthly cocktail party and the annual outing may qualify
under the de minimis rule of paragraph (c). If the costs incurred by

the employer are substantial, then paragraphs (a) and (c) will not appl
For purposes of paragraph (b) the most important relevant factors are

the general availability of the cocktail party to all attorneys and par
legal personnel and the employer's interest in having all of the legal
staff become acquainted with each other and the on-going work in the

firm. Permitting only attorneys and paralegal personnel to attend the
cocktail parties and outing is a reasonable classification of employees.
No compensation includible in gross income results from the cocktail
parties and outing.
Example (18). A corporation maintains American-style schools
for the children of its employees at overseas locations where local
schools either are not available or are not comparable to American
schools. No tuition is charged. Paragraph (a) does not apply because
the employer incurs substantial additional expenses. Under paragraph

(b) the most important relevant factor is that the school provides benefit
similar in nature to services provided in the United States by local
governments. The employees have no compensation includible in
gross income as a result of their children attending the employersponsored school without paying tuition.
Example (19). An employer maintains a day care center on its
premises for pre-school children of its employees who desire to use the
facility. Paragraph (a) does not apply because the employer incurred
substantial additional costs. Under paragraph (b) the most important
relevant factor in this case is that section 214 of the Internal Revenue

Code provides special rules regarding the deduction of day care and certai
other expenses. It would frustrate the policy of section 214 if the fair
value of the services of the day care center were not included in
gross income of the employees utilizing them and then deducted only
to the extent provided in section 214. The employees whose pre-school
children use the day care center have compensation includible in gross
income. They may have an offsetting deduction under section 214.

- 21 (g) Effective date. (1) No employee of the United States shall be
treated as having compensation includible in gross income by reason
of the use of any official vehicle owned or operated by or on behalf

of the United States on or before [insert date this Notice is published
in the Federal Register],
(2) No employer of an automobile agency or related business
shall be treated as having compensation includible in gross income
by reason of the use of a car furnished by his employer as a "demonstrator" without charge (see example (14) of paragraph (f)) on or
before [insert date this Notice is published in the Federal Register].
Paragraph 2. Paragraph 1. 61-2(d) is amended by adding at the
end thereof the following new subparagraph:
1.61-2. Compensation for services, including fees, commissions,
and similar items.
%!>• O- *.!„ 0> -I- O*V*

T

"i*-

"f

-'i'*

"T*

(d) Compensation paid other than in cash. * * *
(6) For special rules relating to certain incidental facilities,
goods, and services benefiting employees, see 1.61-16.

- 2As we publish these proposed regulations, the tax writing
committees of Congress are embarking on a reconsideration of a
substantial segment of the tax law. In that effort, Congress, too,
may wish to focus on certain aspects of the proposals and, perhaps,
to modify the results proposed. While we believe Treasury has
authority to deal with these issues through the adoption of regulations, Treasury would not object to workable legislative changes or
expansion. The lines drawn in the proposals fall in gray areas and
could well be different in a number of respects and still be sound.
The following summary and discussion are published in the hope
that an explanation of the considerations underlying the precedents and
the proposed rules will better focus public discussion.
I. Summary
General rules.
(1) Employees do not have taxable compensation where the
benefit is on hand anyway, it costs nothing additional to provide it,
and it is not limited to top executives.
(2) If a benefit does not qualify under (1), then its tax status
is determined by looking at all of the facts and circumstances. Among
the factors indicating whether or not a benefit is not taxable are:
Whether the employer incurs a substantial and identifiable cost.
Whether the expense is clearly related to the employer's business.
Whether the benefit is exact reimbursement of an unusually large personal
expense incurred by the employee on
account of the employer's business.
Whether the benefit is limited to top
executives.
(3) Small amounts are not taxed.

^^iiir^^^pi^^^---^1111^the general——'
(1) Airline employees and travel agents are not taxed on travel
passes.
(2) Store employees are not taxed on merchandise discounts.

-3(3) An interior decorator is not taxed on the purchase of
furniture for personal use at wholesale prices.
(4) Use of a business jet is not taxed where employees and
their guests use otherwise empty seats. But a flight made only for
personal entertainment purposes of an executive and spouse is taxed.
(5) Benefits to insure safety are not taxed. Examples are
taxi fare home at night from a plant in an unsafe area and bodyguards
after a threat by terrorists.
(6) Cars are not taxed to the extent required for the job. A
specific example deals with and exempts transportation provided the
President, and those cabinet officers, ambassadors, and consuls,
for whom Congress has impliedly recognized that transportation to
and from home is "official. " Officials not covered by Congressional
authorization are taxable on the personal use of government cars,
including commuting between their homes and offices. Another example covers officials such as fire chiefs, who must be on duty at
all hours.
Also not taxed are cars for outside salesmen who pay for gas
for personal use.
Cars are not taxed where they are provided to take an executive from his office to business appointments, but there is tax to the
extent the car is used for commuting. The use of "demonstrators"
by employees of an auto agency who do not primarily use the car
for business is taxed.
(7) Free parking spaces in a company garage are not taxed
under most circumstances.
(8) Having one's secretary type a personal letter is not taxed.
(9) Payment of bar association dues by a law firm is not taxed.
(10) Periodic social functions of a firm are not taxed to
employees.
(11) Tuition-free American-style schools operated for overseas
employees are not taxed to the employee.
(12) The use of a free company day care center results in income
that may be offset by a deduction expressly allowed by statute.

- 4II. Discussion.
The taxation of economic benefits which individuals receive in
kind has been troublesome since our income tax system began in
1913. Fringe benefits have proliferated as our industries and working
conditions have grown ever more complex. Generalized principles
have been slow to develop, and there has inevitably been nonuniformity
of treatment of different taxpayers in similar situations.
The statutory definition of "gross income"--like most broad and
sweeping definitions--fails to provide certainty in a multitude of individual situations. As a result, interpreting and applying the definition have become major tasks for the courts and administrative
officials. As in the case of such other broad phrases as "due process"
and "equal protection, " a substantial gloss on the statutory language
has evolved and become a part of the law.
Our Anglo-American system of law rests firmly on precedent, but
as precedents amass, it has been the role of jurists and scholars to
rationalize the accumulation and to seek the threads of underlying
principle. In the process, some precedents are discarded as defective; others are recognized as correct conclusions, but for reasons
different from those advanced at the time; and the entire process is
subject to constant revision for, as Cardozo said, "if we were to
state the law today as well as human minds can state it, new problems,
arising almost overnight, would encumber the ground again. "* This
constant and dynamic search for organizing principles is the genius
of our legal system. The proposed regulations represent a limited
effort to apply that process to a narrow but vexing area of the tax
law, in which more than half a century of judicial and administrative
precedent have produced considerable confusion and uncertainty.
There are no general principles which will accommodate every
judicial decision and administrative action that has occurred in the
last 62 years, for a number of those decisions and actions are
inconsistent with each other and with the general lines of precedent
that have developed. The attempt has been to discover those organizing principles which best conform to the body of precedent and
which themselves represent sound and equitable policies.
The proposals are presented with the awareness that the principles expressed are not all-encompassing and that the principles
will themselves require modification in time, for it is no doubt
*£ardozo, "The Growth of the Law" (1924), p. 19. These lectures,
addressed in part to the then current effort of the American Law
Institute to "restate" the law in a number of areas, contain a discussion of this process.

- 5necessary to a sound and practical income tax that the content of
"income' should remain somewhat fluid, so that the application
of the tax can keep pace with changing conditions. *
It is intended that the proposed regulations be viewed as
broad principles suggesting a rationale and path to a reasonable
solutions in particular cases. They are essentially different from
those highly technical provisions of the Code and regulations
intended to deal definitively with all aspects of a narrow problem.
They are not to be construed or applied in a narrow and literal fashion
to exclude every situation which fails to be described by the precise
language employed. "As in other sciences, so in politics, it is impossible that all things should be precisely set down in writing; for
enactments must be universal, but actions are concerned with
particulars. "**
The Definition of "income. "
The Internal Revenue Code states simply that
Gross income means all income from whatever source
derived....
As a definition, that language has an obvious defect, for to say that
gross income includes income still fails to tell us what income is.
The statutory language should be viewed rather as broad authorization
to reach such items as may be appropriate, in the context of our
overall system. It is clearly broad enough to encompass almost
any economic benefit, but it is equally clear that it has not been
construed to do so. To the uninitiated layman the language may
appear sufficient. For perhaps the great majority of taxpayers,
no ambiguities exist. Income from wages and salaries, dividends,
interest from savings deposits, and the like are universally
regarded as income under any definition, and for the majority that
appears to take care of all of the problems. But students of the
tax law know better, and most of the hundreds of pages of the
Internal Revenue Code were written to help draw the lines between
what will and what will not be treated as income.

*Cf. Surrey and Warren, Federal Income Taxation, 1972, vol. 1,
p. 115
-^Aristotle, Politics, Book II, quoted by Cardozo, op. cit.

- 6Even for theoretical economists, there has been great confusion
as to exactly what constitutes income. The classic work on the subject is Professor Simons', Personal Income Taxation (1938), which
comments on the task of defining "income":
Many writers have undertaken to formulate definitions,
and with the most curious results. Whereas the word is
widely used in discussions of justice in taxation and without evident confusion, the greatest variety and dissimilarity appear, as to both content and phraseology, in the
actual definitions proposed by particular writers. The
consistent recourse to definition in terms which are themselves undefinable (or undefined or equally ambiguous)
testifies eloquently to the underlying confusion. **
Professor Simons' own theoretical definition of income (generally
known as the Haig-Simons definition) has become the definition
perhaps most widely accepted among economists.
However, the theoretical definitions of income have not been used
for the practical purpose of assessing taxes, except as a frame of
reference against which to judge the existing system. Thus,
Professor Simons, himself, says:
If one accepts our definition of income, one may be
surprised that it has ever been proposed seriously as
a basis for taxation. .. One may remark at the outset
that no government has ever undertaken to graduate taxes
really on the basis of personal income. The actual tax
base is merely something calculated according to more or
less carefully defined methods; and these methods may
be regarded as designed to give results which are in most
instances something like true personal income. Indeed,
every income tax is, and probably must be, based largely
on presumptions.. . . Tax laws do not really define income
but merely set up rules as to what must be included and
what may be deducted; and such rules by no means define
income because they are neither exhaustive nor logically
coherent.. .. Indeed, if there be any excuse for a treatise
like this, it must lie in the importance of maintaining
some broad--and perhaps quite "impractical"--conception in terms of which existing and proposed practices
in income taxation may be examined, tested, and
criticized. *
*Simons, op. cit., pp.~TU3-T06
**pp. 41-42

- 7It is sometimes asserted simply that income includes any "economic
benefit" received, and "economic benefit" is the germ of the more
elegant theoretical definition which Professor Simons developed. But
the concept of "economic benefit" does not explain 60 years of
actual experience. Nor does it conform to public understanding and
custom. The fact that economic logic and theory are separated by
a substantial gap from the legal rules that have actually developed is
neither unique nor undesirable, for as Justice Holmes said:
The life of the law has not been logic: it has been
experience. The felt necessities of the time, the prevalent moral and political theories, intuitions of public
policy, avowed or unconscious, even the prejudices which
judges share with their fellow-men, have had a good deal
more to do than the syllogism in determining the rules
by which m e n should be governed. *
A few examples will suffice to show that the concept of "economic
benefit" does not explain the law:
(1) Social security, welfare, and unemployment compensation payments are not taxable as income under our system. There is no section of the Code which so provides. The exclusion grew up as a
result of administrative action, undoubtedly in response to what
Justice Holmes called "the felt necessities of the times. "
(2) Persons who purchase life insurance pay premiums which are
in effect invested on their behalf. Income from those investments
is not taxed to the purchaser, notwithstanding that they clearly
represent economic benefits.
(3) Taxpayers who invest money in the purchase of a house
realize income in kind consisting of the right to live in the house.
That income is not taxed under our tax system although there is
nothing in the Code which expressly excludes it. (Such income has
been taxed at various times under other systems. ) A taxpayer who
invests the same money in stocks or bonds with the intention of using
the income to rent a house, on the other hand, must pay tax on the
income from the stocks and bonds, which reduces the amount available to pay rent.
(4) Meals and lodging provided to taxpayers by their employers
clearly constitute an economic benefit but are not taxable to the
extent they are provided "for the convenience of the employer. "
This exclusion was initiated early by administrative ruling and
existed for 40 years on that basis. In 1954, it was written into
the Internal Revenue Code in somewhat modified fashion.
^'Holmes, The C o m m o n Lav, p. I.

- 8(5) Entertainment, meals, travel, and lodging received in a
business context are in large part untaxed under current statutory
provisions. At the higher levels of today's business communities,
individuals' personal and business lives tend to meld into an indistinguishable whole, and many persons spend much of their lives
in such activities. It is a legitimate conjecture whether the
restaurant and resort industries would be decimated without these
provisions.
(6) Large elaborate offices for executives, attended with
employees and accompanied by working conditions designed to provide
every creature comfort and convenience are commonplace and
obviously constitute an economic benefit which has both personal
and business aspects. Those benefits are not taxed.
(7) A great variety of miscellaneous benefits provided by
employers have been held administratively not to constitute income.
Examples include group-term life insurance and compensation for
tornado damage.
None of the economic benefits in the foregoing examples was
originally excluded from income because of a clear and specific
statutory exclusion. Nor were they excluded because of insurmountable administrative considerations. For the billions of dollars of additional revenues which could be obtained from these
sources, it would obviously be possible to devise workable administrative rules.
The results are better explained by what Justice Holmes called
"the prevalent moral and political theories, " than by strict theory.
The attitude of labor unions on some of these items is interesting
as an expression of one view as to "prevalent theories. " Justice
Goldberg speaking in his earlier role as General Counsel, CIO,
took the following position:
The line between [compensation and conditions of
employment] is, perhaps, not susceptible of precise
definition. The reason it is not is because the line is
really an institutional and sociological one. It depends
very much on what our current conception of the relative
responsibilities of employer and employee happen to be.
The question is whether the benefit in question is one
which we regard as a proper responsibility which employers should supply for employees as a condition of employment wholly apart from the compensation for their work.
And the answers to that question vary from time to time.

- 9To the extent that benefits are usually or normally provided by employers, even though they m a y involve a saving
to an employee over alternative methods of providing this
facility by himself, then, to that extent the provision
of such benefits should not be considered as compensation
to the employee but as the provision of improved conditions of work.
Applying these views to employer-provided insurance, he concluded
the benefit to be nontaxable, stating:
How about insurance? With this principle in mind, are
the insurance programs negotiated by unions just a disguised way of paying compensation, or are they offered
on a service basis as a condition of employment? Clearly
the latter. *
The Internal Revenue Code as presently interpreted by the regulations
and the better reasoned case law requires more than a finding that
an employee enjoyed an economic benefit. Section 61(a)(1) of the
Code speaks of "compensation for services. " The regulations condition taxability upon finding a situation where "services are paid for
other than in money. " Treas. Reg. Sec. 1. 61-2(d)(l). And, in the
Supreme Court's words, section 61 "is broad enough to include in
taxable income any economic or financial benefit conferred on the
employee as compensation. " Comm'r v. Smith, 324 U.S. 177, 181
(1945) (emphasis added). The notion of a bargain between employer
and employee--that there must be a payment in exchange for
services--has been added as an essential element for the taxation
of compensation, including fringe benefits.
Policy Considerations.
In sum, there is no easy or entirely satisfactory answer as to how
all economic benefits should be taxed or not taxed. Professor Simons
says with respect to income in kind:
There is here an essential and insuperable difficulty,
even in principle. The problem. . . certainly is not
amenable to reasonable solution on the basis of simple
rules which could be administered by revenue agents. . . .
At all events, let it be recognized that one faces here
one of the real imponderables of income definition. **

^Quoted in Surrey and Warren, o£). cit. , p. 139
** Simons, op. cit., pp. 123-24

<T
- 10 -

The principles governing the taxation of fringe benefits inescapably
involve a large degree of judgment not reducible to a single formulistic test or tests. Simple mechanical formulas are not possible.
In reaching the judgments embodied in the proposed regulations, the
following policy considerations were taken into account.
(1) Present practices in general are codified. Sixty-two years
of experience must be given great weight. The practices which have
developed provide a reasonable and pragmatic guide to which economic
benefits are appropriate for taxation. The general rules of the proposed regulations excluding benefits inherent in the employer's business under certain circumstances deal with a category of clear
economic benefits that have not been generally taxed and which, we
believe, generally should not be taxed. The first eight factors set
out in the proposed regulations are distillations of principles from
experience and are applications of the ninth factor, which states that
an item is not taxed if it is not thought of as constituting compensation paid for services. While these factors necessarily lack particularity in m a n y respects, they are m u c h m o r e specific than the
statutory language and far preferable to some simplistic theory
(such as "economic benefit") that is at odds with our national conception of what realistically constitutes taxable compensation for services. In s o m e instances, where precedent was slim, or unconvincing, questions have been resolved in favor of taxpayers. In other
cases, rules were resolved against taxpayers even though good
arguments would be m a d e for a contrary result. For example, in
the case of executive transportation furnished by employers, it
might arguably have been reasonable to hold that private transportation was not taxable to the extent it was furnished to permit
the executive to perform work while commuting. However, the line
of precedent with respect to commuting expense is so extensive and
so firmly established that such a rule did not appear to be an administrative option.
(2) Statutory authority is broad but not mandatorily all-encompassing.
The statutory definition of income is very broad. That broad scope
provides the residual authority to deal with new forms of compensation and other income generally as they develop without having to amend
the statute each time. Inherent in that authority is the flexibility
and, indeed, the necessity to distinguish between economic benefits
which should be taxed and those which should not. The draft regulations do not extend the reach of the income tax to fringe benefits so
far as they could legally, but only so far as they m a y practically.
(3) Equity among taxpayers. As indicated earlier, many highincome persons, particularly those whose business and personal
lives are in effect melded, enjoy mstjor economic benefits in the form
of meals, lodging, travel,and entertainment, m u c h of which goes
untaxed under rules that are statutory. W h e n this is occurring in

-11 -

so widespread a fashion, it seems particularly unfair, for example,
to tax ordinary airline employees for traveling in otherwise empty
seats or to tax retail clerks for discounts received on goods purchased from their employers.
If all taxpayers had fringe benefits or other benefits in kind
and those benefits were roughly in proportion to their other
income, then the uniform exclusion of all such benefits from tax
would be as equitable as tax matters are likely ever to be and
would probably contribute to a m o r e efficient and effective tax
system, as it would avoid the valuation and withholding problems
discussed below. But the non-uniform exclusion of such benefits-exclusions for s o m e but not others--would be clearly inequitable.
Thus, in drafting the proposed regulations a special effort was m a d e
to be sure that ordinary taxpayers in the lower and middle income
classes were treated in a fashion as generous as that which very
high income taxpayers already enjoy, subject to the overriding
principle that the integrity of the system must be protected.
(4) Valuation problems. Valuation of benefits in kind is extremely
difficult in many, if not most cases, and the necessity for valuation
vastly complicates the tax law. What is the value to a stewardess
of riding in an otherwise empty seat? In most cases the privilege
would not be worth to her the retail price of a ticket, i. e., she
would not m a k e the trip if she had to pay for it. Thus, in Reginald
Turner, 13 T. C. M . 462 (1954), the court dealt with taxpayers who
had won a free trip to South America and stated:
The winning of the tickets did not provide them with
something which they needed in the ordinary course of
their lives and for which they would have m a d e an
expenditure in any event, hut merely gave them an
opportunity to enjoy a luxury otherwise beyond their
means. Their value to the petitioners was not equal to
their retail cost.
Similarly, how would one tax free or subsidized medical and
recreational services and facilities for employees? Or company
cafeteria meals provided at prices less than the prices prevailing
in comparable restaurants? Valuation of such items comes very
close to valuing working conditions as such, an undertaking that would
encounter almost insurmountable difficulties. * In general, it is
desirable to avoid the complications of taxing such items, unless
their omission constitutes a serious threat to the tax base or creates inequities that are significant in the context of the system as a
whole.

-See Vickrey, Agenda for Progressive Taxation (1947), p. 123.

- 12 (5) Withholding considerations. Our system relies on wage
withholding to collect most of the personal income tax. In 1972, $91
billion of $110 billion personal income tax collected was withheld from
wages. The system works well only because almost all of the tax
is collected automatically on cash payments. Withholding involves
only easy arithmetic applied to unambiguous dollar amounts. Audit
of withheld amounts is easy. If we should attempt to include in
the withholding base every economic benefit enjoyed by great numbers
of employees, the operation of the system would be seriously jeopardized. Taxpayers would have many ingenious theories to justify
exclusion from gross income and, when taxed, there would be an
infinity of valuation problems, of the kind referred to above.
This reliance on a simple self-executing system to collect most
income tax leads to the policy judgment that, as a general rule, only
those fringe benefit cases which threaten the integrity of the basic
system should be taxed. Thus, the proposed regulations reach private
junkets on corporate aircraft, personal use of company cars (and
drivers) by executives, and discriminatory use of company facilities
generally. While the proposed regulations reach these obvious cases,
they do not involve the esoteric problems of taxing, and thus valuing,
for example, the right to occupy an otherwise empty seat on a commercial flight. Employee discounts and free travel for airline flight
attendants do not threaten the integrity of our income tax system.
There is a great risk that trying to tax these and similar items would
threaten the continued success of our self-assessment system.
(6) Retroactivity. In some cases, notwithstanding that existing
precedent might have supported an assertion of taxability, it is in
fact the case that tax has not been generally collected. This is true,
for example, in the case of automobiles and automobile transportation
provided in a variety of situations. In such cases, it seems unfair
to impose heavy tax liabilities retroactively on unsuspecting laymen.
Thus, in a few instances, the proposed regulations would exercise
the statutory discretion given by the Code to the Secretary to apply
administrative rules on a nonretroactive basis.
Conclusion.
The proposed regulations are published for discussion as an
attempt to provide guidelines that will afford greater degrees of
certainty, uniformity, and fairness in an area which has become
steadily more significant. They will not provide simple formulas
which can be mechanically applied by revenue agents. That is not
a defect, as present law provides no such formula either, except
insofar as the broad sweep of the existing statutory language m a y
in practicality give a revenue agent the personal discretion to include
anything and everything that appears to result in economic benefit

- 13 -

to the employee--an obviously unsatisfactory state of affairs. There
is no way to avoid judgments in this difficult area, and w e can only
work to insure that those judgments are as sound and uniform as
possible. The draft regulations are published in the hope that they
will provide the basis for prescribing better guidelines to that end.

Office of the
Assistant Secretary for Tax Policy
September 2, 1975

- 13 to the employee--an obviously unsatisfactory state of affairs. There
is no way to avoid judgments in this difficult area, and we can only
work to insure that those judgments are as sound and uniform as
possible. The draft regulations are published in the hope that they
will provide the basis for prescribing better guidelines to that end.

Office of the
Assistant Secretary for Tax Policy
September 2, 1975

FOR RELEASE AT 4:00 P.M.

,

r

, . ,.

September 3, 1975

TREASURY OFFERS $1.5 BILLION OF TREASURY BILLS
-• i

9

j"7

'

+

The Department of the Treasury, by this public notice, invites tenders
for two series of Treasury bills to the aggregate amount of $1,500,000,000,
or thereabouts, to be issued September 5, 1975, as follows:
13-day bills (to maturity date) in the amount of $800,000,000, or thereabouts, representing an additional amount of bills dated March 20, 1975,
maturing September 18, 1975 (CUSIP No. 912793 XP6), and
20-day bills (to maturity date) in the amount of $700,000,000, or thereabouts, representing an additional amount of bills dated March 27, 1975,
maturing September 25, 1975 (CUSIP No. 912793 XQ4).
The bills will be issued on a discount
and at maturity their face amount will be
be issued in bearer form in denominations
$500,000 and $1,000,000 (maturity value),
bidders.

basis under competitive bidding,
payable without interest. They will
of $10,000, $15,000, $50,000, $100,000,
and in book-entry form to designated

Tenders will be received for each issue only at the Federal Reserve Bank
of New York up to noon, Eastern Daylight Saving time, Thursday, September 4,
1975. Wire and telephone tenders may be received at the discretion of the
Federal Reserve Bank of New York. Each tender for each issue must be for a
minimum of $10,000,000. Tenders over $10,000,000 must be in multiples of
$1,000,000. The price on tenders offered must be expressed on the basis of
100, with not more than three decimals, e.g., 99.925. Fractions may not be used.
Banking institutions and dealers who make primary markets in Government
securities and report daily to the Federal Reserve Bank of New York their
positions with respect to Government securities and borrowings thereon may
submit tenders for account of customers provided the names of the customers are
set forth in such tenders. Others will not be permitted to submit tenders
except for their own account. Tenders will be received without deposit from
incorporated banks and trust companies and from responsible and recognized
dealers in investment securities. Tenders from others must be accompanied by
payment of 2 percent of the face amount of bills applied for, unless the tenders
are accompanied by an express guaranty of payment by an incorporated bank or
trust company.
Public announcement will be made by the Department of the Treasury of the
amount and price range of accepted bids. Those submitting tenders will be
advised of the acceptance or rejection thereof. The Secretary of the Treasury
expressly reserves the right to accept or reject any or all tenders, in whole
or in part, and his action in any such respect shall be final. Settlement for
accepted tenders in accordance with the bids must be made at the Federal Reserve
Bank of New York on September 5, 1975, in immediately available funds.
(OVERl

FOR RELEASE AT

4:00 P.M.

\. ,

^.

L

;r

~September3, 1975

TREASURY OFFERS $1.5 BILLION OF TREASURY BILLS
r

f \ j-y <- .•

The Department of the Treasury, by this public notice, invites tenders
for two series of Treasury bills to the aggregate amount of $1,500,000,000,
or thereabouts, to be issued September 5, 1975, as follows:
13-day bills (to maturity date) in the amount of $800,000,000, or thereabouts, representing an additional amount of bills dated March 20, 1975,
maturing September 18, 1975 (CUSIP No. 912793 XP6), and
20-day bills (to maturity date) in the amount of $700,000,000, or thereabouts, representing an additional amount of bills dated March 27, 1975,
maturing September 25, 1975 (CUSIP No. 912793 XQ4).
The bills will be issued on a discount
and at maturity their face amount will be
be issued in bearer form in denominations
$500,000 and $1,000,000 (maturity value),
bidders.

basis under competitive bidding,
payable without interest. They will
of $10,000, $15,000, $50,000, $100,000,
and in book-entry form to designated

Tenders will be received for each issue only at the Federal Reserve Bank
of New York up to noon, Eastern Daylight Saving time, Thursday, September 4,
1975. Wire and telephone tenders may be received at the discretion of the
Federal Reserve Bank of New York. Each tender for each issue must be for a
minimum of $10,000,000. Tenders over $10,000,000 must be in multiples of
$1,000,000. The price on tenders offered must be expressed on the basis of
100, with not more than three decimals, e.g., 99.925. Fractions may not be used.
Banking institutions and dealers who make primary markets in Government
securities and report daily to the Federal Reserve Bank of New York their
positions with respect to Government securities and borrowings thereon may
submit tenders for account of customers provided the names of the customers are
set forth in such tenders. Others will not be permitted to submit tenders
except for their own account. Tenders will be received without deposit from
incorporated banks and trust companies and from responsible and recognized
dealers in investment securities. Tenders from others must be accompanied by
payment of 2 percent of the face amount of bills applied for, unless the tenders
are accompanied by an express guaranty of payment by an incorporated bank or
trust company.
Public announcement will be made by the Department of the Treasury of the
amount and price range of accepted bids. Those submitting tenders will be
advised of the acceptance or rejection thereof. The Secretary of the Treasury
expressly reserves the right to accept or reject any or all tenders, in whole
or in part, and his action in any such respect shall be final. Settlement for
accepted tenders in accordance with the bids must be made at the Federal Reserve
Bank of New York on September 5, 1975, in immediately available funds.
COVERS

-2-

<

^

Under Sections 454(b) and 1221(5) of the Internal Revenue Code of 1954
the amount of discount at which bills issued hereunder are sold is considered
to accrue when the bills are sold, redeemed or otherwise disposed of, and the
bills are excluded from consideration as capital assets. Accordingly, the owner
of bills (other than life insurance companies) issued hereunder must include
in his Federal income tax return, as ordinary gain or loss, the difference
between the price paid for the bills, whether on original issue or on subsequent
purchase, and the amount actually received either upon sale or redemption at
maturity during the taxable year for which the return is made.
Department of the Treasury Circular No. 418 (current revision) and this
notice, prescribe the terms of the Treasury bills and govern the conditions
of their issue. Copies of the circular may be obtained from any Federal Reserve
Bank or Branch.

.

FOR IMMEDIATE RELEASE

September 3, 1975

TREASURY FINANCING ANNOUNCEMENT
In order to meet its financing needs through the low
point of its operating cash balance in mid-September, the
Treasury will sell up to $0.8 billion of an additional
amount of the bills maturing September 18, 197 5, and up to
$0.7 billion of an additional amount of the bills maturing
September 25, 1975. These 13- and 20-day bills will be
auctioned only through the Federal Reserve Bank of New
York on September 4 for payment on September 5. The minimum
acceptable tender for each of these issues will be $10 million,
with increments of $1 million above that minimum.
The need for a short-term cash management instrument
of this type has substantially increased over the past
several- years and is a result of the growing concentration
of large payments in the first several working days of
each month. This in turn has led to the substantial increase in the variability of the Treasury's cash balance,
thereby requiring that the Treasury either maintain abnormally
high balances to accommodate the intra-monthly low point in
the balance or to borrow
directly from the Federal Reserve.
The resulting variability of the Treasury's balance at the
Federal Reserve Bank affects the reserves of the banking
system in a manner that often requires the Federal Reserve
to undertake large open market operations to offset this
reserve impact. These operations have at times been unsettling to the market. Use of short-dated bills of this
type, first offered by the Treasury in August of this year,
represents a new means for the maintenance of orderly markets.
As such,this offering serves much the same purpose as Tax
Anticipation Bills which have been offered from time to time
in the past to provide financing over a low point in the
Treasury's cash balance prior to a major tax date. Unlike
the use of Tax Anticipation Bills, however, the sale of these
bills carries no implication of a future paydown. However,
depending upon cash requirements, the Treasury may choose to
either increase or decrease the amounts to be offered when
these bills mature.

-2These short-dated bills have been referred to as "Federal
Funds Bills." The minimum $10 million tender size and the
offering solely through the Federal Reserve Bank of New York
simplify
the auction and permits these bills to be sold on
much shorter notice than is the case with regular bill auctions.Investors outside of New York may subscribe through correspondent banks or dealers in New York or directly with the
Federal Reserve Bank of New York by wire.

HINGTON, D.C. 20220
fASHir

Jf*
September 4, 1975

FOR IMMEDIATE RELEASE
RESULTS OF AUCTION OF $1.5 BILLION
OF 13-DAY AND 20-DAY TREASURY BILLS

The Treasury has accepted $0.8 billion of the $3.0 billion of tenders
received for the 13-day Treasury bills and $0.7 billion of the $3.2 billion
of tenders received for the 20-day Treasury bills, to be issued September 5,
1975, auctioned today. The range of accepted bids was as follows:
OF ACCEPTED
ITIVE BIDS:

High
Low
Average

13-day bills
maturing September 18, 1975
Price

Discount
Rate

99.782
99.775
99.777

6.037%
6.231%
6.175%

:

Investment :
Rate
:
6.15%
6.35%
6.29%

:
:
:

20-day bills
maturing September 25, 1975
Price

Discount
Rate

99.664
99.656
99.658

6.048%
6.192%
6.156%

Tenders at the low price for the 13-day bills were allotted 95%.
Tenders at the low price for the 20-day bills were allotted 90%.

Investment
Rate
6.17%
6.32%
6.28%

£f/
FOR IMMEDIATE RELEASE

September 4, 1975

Contact: H.C. Shelley
964-8256
TREASURY ANNOUNCES ACTION ON
ANTIDUMPING INVESTIGATION

Assistant Secretary of the Treasury, David R. Macdonald,
announced today a final determination that certain non-powered
hand tools from Japan (chisels, punches, vises, c-clamps, hammers
and sledges, and battery service tools) were being sold at less
than fair value within the meaning of the Antidumping Act of 1921,
as amended. The U.S. International Trade Commission has been
advised of this decision and must now determine whether such imports are injuring a U.S. industry.
Five Japanese firms, Imoto Hamono Co., Ltd., Kyoto Tool Co.,
Ltd. (hammers), Hiroto Tekko K.K. (sledges), Tashiro Seisakusho,
and Japan Export Brush Co. (battery servicing tools), were found
to have had no less than fair value sales during the investigatory
period and have been excluded from the determination.
Mr. Macdonald also announced that the investigation with
respect to micrometers, vernier calipers, and dial indicators
had been discontinued. Margins of sales at less than fair value
for these categories of tools were minimal and assurances were
received from the Japanese manufacturers that future sales would
be at fair value. Imports of these tools will be monitored for
a two-year period by the U.S. Customs Service.
A withholding of appraisement notice and a tentative
discontinuance of the investigation for the respective categories
of tools was published in the Federal Register of June 5, 1975.
Interested persons were given the opportunity to present their
views on the investigations.
Notice of these final actions will be published in the
Federal Register of September 5, 1975.
During calendar year 1974, imports of these non-powered
hand tools from Japan were valued at approximately $11 million.

June 30, 1975

3fZ

UNITED STATES SAVINGS BONOS ISSUED AND (ADEEMED THROUGH
(Dollar amounls in millions - rounded >nd will not necessarily add to totals)
DESCRIPTION

A M O U N T ISSUED-^/

MATURED

5003
29521
3754

S^ri^ A-10.15 thru D-1941
snrios V and G-1941 thru 1952
pnrios .1 and K-1952 thru 1957

AMOUNT
REDEEMED—'

AMOUNT
OUTSTANDING--/

4999
29502
3749

"/r O U T S T A N D I N C
OF A M O U N T ISSUf

4
19
5

.08
.06
.13

176
794

9.05
9.25
9.11
9.60
12.02
13.12
15.35
16.65
17.95
18.98
19.00
19.48
20.95
22.03
22.82
23.27
24.06
25.81
25.45
28.30
30.55
32. 10
35.32
34.98
35.44
37.59
38.23

UNMATURED
Scries V.-* :
194 2

1944
8580

1943

13/94

1941

16118
12/12
-5808
5549
5761
5726
5032
4353 4564
5242
5360
5595
5402
5099
4999
4695
4732
4838
4719
5325
5189
5082
5509
5464
5169
4868
5102
5889
6501
6433
6501
2047

1944
1945
1946
1947
1948
1949
1950
1951
1952
1953
1954
1955
195G
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968

II (\Tnnp

109,8
1181
1277
1257
1227
1290
1242
1339
1478
1515
1881
1815
18012071
2089
2034
2011
2318
3045
3727
3910
4597
1856

1290
6574

23.52
63.51

15835

7969

7864

49.66

226341

160859

65480^

28.91

38278

38250

226342

264620

660

147

y

160859
199109 _j

...

Include accrued discount.
Cwrom redemption value.
'4.
™ * P M o n of owner bonds may be held and will earn intereit {or additional periods e tier original maturity datt

; 28
65480
65508 st9

:
»

:
:

;

3 9 . "56

4194
3775

'•

Total Series H

Grand Total

955
827
889

5484
10351

807

I Q ^ Q thru 1 0 7 5 ^

Total Strips F" and H

1028

57616^

v

UnclassifipH

in^cn 9/

762
852
959

152890^

1973
1974

SeriO~S H Mtl'iO thru I h v

1257
1547
1364

210,506

1971
1972

-Total Series E

\

41.31
45.43
51.71
57.33
60.78
70.71
90.67
18.22
27.37

1969
1970

1975

1768
//86
12537
14571
11348
5046
4697
4802
4698
4077
3526
3676
4144
4179
4318
4145
3872
3709
3452
3393
3360
3204
3444
3373
3281
3439
3374
3134
2857
2785
2844
2774
2523
1903
191 . "

.07
78793
24.76

•

293

The Absorptive Capacity
Of The OPEC Countries

September 5, 1975

The Absorptive Capacity of OPEC Countries
Page
I.

Executive Summary

i

II. Introduction 1
III. The Absorptive Capacity of OPEC Countries 2
IV. Imports in 1980 and 1985 5
V. Country Analyses
Iran 8
Saudi Arabia
Kuwa it
Nigeria
The United Arab Emirates
Iraq
Algeria
Qatar
Venezuela
Ecuador
Indonesia
Libya
VI. Policy Implications 40
Annex - Trends in OPEC Current Account Position

11
15
18
20
23
26
28
30
32
35
37

J?r
Executive Summary

1. The sharp increases in the price of oil in late
1973 and early 1974 and the consequent jump in the revenues
of the oil producing countries have generated considerable
interest in the question of the absorptive capacity of these
countries and the extent to which they will be able to
utilize their oil revenues for domestic investment and
consumption. The question is central to the issues of real
resource transfer, recycling and to the impact of these
issues on the domestic economic objectives of the consumer
countries.
2. These issues have resulted in a number of efforts
to gauge the size and structure of the evolving payments
position of the OPEC countries. Little effort, however, has
been devoted to analyzing the capacity of individual OPEC
countries to utilize domestically (or absorb) oil revenues
despite large differences in the economic structure of these
countries. Most of the forecasts have been of aggregate
imports for OPEC as a whole. A few have attempted to separate
OPEC into two groups — high absorbers and low absorbers
and have projected imports for each of these groupings.
This study investigates factors which will bear heavily on
each country's import levels over the next decade.
3. During the past year and a half, oil revenues have
trickled through broad segments of almost all of the OPEC
economies, in consequence of sharply rising government
expenditures. In most cases public outlays have increased
more rapidly than imports and this pattern has been a major
factor in intensifying domestic price pressures. There is
considerably greater scope for further massive redistribution of oil revenues in OPEC countries, but an effort in
this direction is not a prerequisite for sustained high
levels of imports. The extent to which OPEC revenues will
be redistributed, however, will affect the mix of OPEC
imports.
4. The OPEC countries are beginning to face major
problems in further expanding their import levels. These
problems have become increasingly apparent in the aftermath
of the sharp increase in OPEC imports since 1973 which has
strained certain facilities in a number of countries to
their limits. Most OPEC countries have recognized these
constraints, however, and have in train policies and programs
to mitigate or overcome them in the framework of their

^

domestic development plans. The most serious of these
constraints are in transportation and manpower. Foreign
exchange availabilities are already limiting the import
capability of one OPEC country and several others are
expected to experience a similar constraint within the next
few years.
5. Infrastructure expenditures now have the highest
priority in most of the OPEC countries, but many OPEC
governments have plans for diversification into industrial
activities and establishment of broader agricultural bases.
The prospects for successful diversification are uneven and
for some countries further development of the energy sector
may be the most profitable avenue. Many of the OPEC countries
have limited non-hydrocarbon resources and in addition small
domestic markets will severely limit the possibility of
achieving economies of scale without access to broader
regional or world outlets. This access in turn will depend
on comparative costs which have not yet been sorted out for
many of the plans and projects under consideration. Duplication of effort in some areas which could lead to oversupply
problems is also likely to occur. The completion of investment projects in industry and agriculture will frequently
result in either increased exports or import substitution,
so that the absorptive capacity of these countries will
change. The direction of this change will vary from country
to country.
6. The Gulf States are least likely to be able to
utilize their oil revenues domestically during the next five
years, in a reasonably efficient manner. But perhaps only
Saudi Arabia and Kuwait will sustain large current account
surpluses into the 1980,s. On the whole we would expect to
see aggregate OPEC imports grow from $37 billion in 1974 to
$89 billion in 1980 and to $133 billion by 1985, (all in
1974 prices). This would mean a continuous decline in the
annual increase in real OPEC imports from 45 percent in 1974
and 33 percent in 1975, to an average increase of 16 percent
annually through the end of this decade, and then to an
average increase of only 8 percent from 1980 to 1985.
Employing the OECD's forecasts of the growth in OPEC's oil
earnings, these import levels would imply an OPEC current
account surplus of about $13 billion in 19 80, and a cumulative
surplus through 1980 of $195 billion, both in 1974 dollars.
7. In comparison, the aggregate OPEC investible
surplus in 1974 is estimated at $59 billion which we anticipate
will decline this year to a surplus of about $46 billion.

iii
Saudi Arabia and Iran, which accounted for more than half
of the aggregate OPEC surplus last year, will have an even
more dominant position in 1975, despite extremely large
increases in their import levels.
8. The issue of absorptive capacity — through its
determination of how rapidly the transfer of real resources
from the consuming to the producing countries will proceed —
relates to several key goals which the industrial countries
would seem to have in their relations with OPEC nations. In
particular absorptive capacity raises questions with respect
to the compatibility of the policies and objectives of the
two groups of countries and efforts to ensure that current
and prospective oil earnings have minimum disruptive effects
on the Western economy and its growth prospects.
9. In the debate that has followed the large and
abrupt change in oil prices, there appears to have emerged a
preference in many industrial countries for a continued
rapid increase in OPEC imports, i.e., a continued rapid
transfer of real resources. The preference for present
versus future transfers, however, involves a number of
complex considerations which have not previously been adequately
explored and some of the key arguments in favor of one
option or the other fail to hold up under intensive scrunity.
Some of the more widely discussed factors bearing on this
issue include the effects on: the total level of transfers
that would result; the capacity to service OPEC claims; the
problem of recycling and cyclical conditions in the major
consumer countries.
10. It is far from certain that delayed transfers of
real resources will mean a larger total transfer over time.
As long as general price movements are as large as pecuniary
returns on OPEC investment then the size of the transfer
will be unchanged. But recent history indicates a less than
complete interest rate accommodation to the rate of inflation.
11. On the other hand, OPEC investment in the consuming countries will not necessarily permit a greater
increase in their capacity to service OPEC claims, since
export income not only also generates investment capital,
but equally important, it increases the demand for such
capital through fuller utilization of existing capacity.
12. It is probably impossible for either OPEC governments or OECD governments to develop a trading pattern which
will always complement the domestic economic policies of the
exporting country, nor would this appear to be necessary.

iv

Export markets cannot predictably be turned on and off with
ease and foreign trade has seldom been used successfully as
a major counter-cyclical device. On the other hand domestic
authorities are able to create or extinguish domestic demand
with greater ease, particularly since policy shifts to
change overall demand and supply conditions must be taken
quickly. Finally, from a micro viewpoint it is not practical
to assume that OPEC countries are ready or able to confine
their purchases to the more severely depressed sectors of
the economy during periods of economic slowdown.
13. Similarly it should not be assumed that the main
solution to short-term adjustments in the international
payments position of the major consuming countries, either
individually or collectively would lie in a sharp acceleration of exports. The ability to increase exports depends
upon the pace and manner of implementation of the highly
diverse and uncertain plans of the OPEC countries. As a
general proposition the high degree of mobility of capital
makes short term adjustments through financial flows far
more practical than through changes in current transactions.
Previous fears that the market mechanism would be incapable
of handling such large financial adjustments have proved to be largely unfounded.
14. There is likely to be a significant relationship
between the absorption rate of the OPEC countries and their
policies with respect to oil production and prices. But the
manner in which these relationships will evolve is highly
uncertain at the present time. To date the OPEC countries
have been able to reconcile their respective revenue availabilities and requirements through selected changes in both
prices and production. Whether countries which have excess
revenues will be prepared to continue to make adjustments
for the sake of countries facing revenue constraints remains
to be seen. Similarly, it is not clear whether the success
of the development efforts of OPEC governments which would
graphically demonstrate the utility of their oil revenues,
would encourage them to maintain high revenue levels through
higher prices or higher production. Conversely, the failure
to utilize OPEC revenues in a productive way could prompt
either conservation efforts or lower prices.
15. Regardless of the preference that individual
oil consuming countries may have with respect to the timing
of real resource transfers to OPEC countries, a number of
constraints will intervene which will make it difficult to
carry out major policies designed to achieve the preferred
result. In the first place, commercial exchanges of the oil

V

consuming countries are heavily dominated by the activities
of private firms who cannot easily be convinced to undertake
unproductive ventures, nor sacrifice productive undertakings
against the interests of their shareholders and communities.
Furthermore, policy decisions which would attempt to channel
oil revenues in a particular way could lead to preferential
trade and investment policies which would compromise the
economic liberalization that has been so painstakingly established in the post-war period.
16* Governments must guard against a tendency toward
a competitive race among them for OPEC markets and investment capital, through subsidies, guarantees or the like.
Otherwise the total cost of their oil burden could easily
increase. Moreover, they must recognize that countries
which rely heavily on specific foreign markets are no less
vulnerable to them than are countries which rely on specific
sources of oil.
17. We would conclude that the appropriate policy
framework in the OECD countries for the transfer of real
resources to OPEC governments would be one which would
maximize the play of market forces. Not only is this
likely to prove necessary for practical reasons, but
advantageous from the viewpoint of maximum efficiency and
world income.

Introduction

The sharp increase in the price of internationally
traded oil has posed complex problems to both producing and
consuming countries which both are now beginning to sort out.
The consuming countries are seeking to find ways of minimizing the adverse impact on their economies, while the producing
countries are attempting to sustain high oil prices and to
utilize their increased oil receipts in a productive manner.
The policy issues which have evolved from the sharp
redistribution of world income to the oil producing countries
have directed considerable attention to the absorptive capacity
of these oil producing countries. It is central to the issue
of real resource transfer and to the associated issues of
recycling and consistency with the domestic economic objectives
of the consumer countries. Finally, it is relevant to the
industrialization efforts of the OPEC countries and consumer
country response. These issues have prompted a number of
analysts to investigate the evolving size and structure of
OPEC revenues and expenditures in the years ahead.
The analysis behind most of the forecasts of the OPEC
current account position which have appeared to date has
focused mainly on the outlook for oil revenues. Far less
effort has been devoted to an analysis of the capacity of each
of the OPEC countries to utilize (or absorb) oil revenues
despite their distinct differences. Some forecasts have applied
a common growth rate in forecasting imports for the OPEC countries. Others have separated OPEC members into a high absorber
group and a low absorber group, and have applied separate growth
rates to each group.
As a step toward further refinement of forecasts of the
OPEC payments position, this study investigates factors in
each of the OPEC countries which will bear heavily on their
respective import levels over the next decade. Rough estimates
of each country's imports in 1980 and 1985 have been derived
from these analyses. The study benefits from the considerable
work that has been done in estimating oil revenues, to identify
possible cases of revenue constraints.
It should be emphasized that significant problems and
uncertainties remain in attempting to analyze OPEC's payments
position. Most notable are a paucity of hard data and the

somewhat related problem of a still less than perfect understanding in the industrial world of the evolving structure
of each OPEC economy.
The Absorptive Capacity of the OPEC Countries
Although the absorptive capacity of the OPEC countries
can be measured by the current level of their imports relative
to their current oil revenues, this measurement is not indicative of future absorptive capability. Countries which will
have mounted large current account surpluses in 1974-75 may
nevertheless eventually be able to employ the bulk of their
current oil earnings for domestic purposes. After a time
most of them may be able to utilize even their accumulated
wealth domestically, especially those countries with major
infrastructure requirements and/or moderately large population
bases.
In order to accelerate the utilization of their new
wealth and to do so in the most efficient manner, OPEC
countries have been relying heavily on foreign contractors
and consultants in implementing their investment plans.
Imports of consumer goods continue to be dominated by government imports, particularly of agricultural commodities and
foodstuffs. Changes in this trend will depend upon the
increase in disposable income in the hands of individuals
which more than ever will depend upon the willingness and
ability of OPEC governments to redistribute oil revenues,
directly and/or indirectly. With respect to the "non-commercial" category of imports, several OPEC countries, particularly in the Middle East, have exhibited a strong desire to
import military equipment. On the other hand, "prestige"
expenditures have not been pronounced to date.
Developments in the aftermath of the abrupt and
massive increases in petroleum prices have presented OPEC
countries with problems as well as opportunities. In most
cases they have been unable to absorb fully the resulting
large infusions of foreign exchange. Oil revenues have
trickled through broad segments of the economy both directly
through government transfer programs and indirectly through
the demand for services associated with government investment and consumption. Increases in government expenditures
have generally exceeded increases in imports and domestic
price pressures have intensified.
The effects of oil revenues on the private sectors in
the OPEC countries and on their propensity to consume pose
a complex situation which is not easily understood. Strength-

J3*L
ening the private sector is not a goal in all of the OPEC
countries. Nor is it clear to what extent income redistribution can be accomplished through traditional fiscal
policies on the income and expenditure side. A major redistribution of oil revenues within OPEC economies, however,
is not a prerequisite for sustained high levels of imports,
but the extent to which this is accomplished will have an
important bearing on the import mix. Direct government
expenditures will mean continued emphasis on imports for
infrastructure development, and other forms of investment,
in addition to food and in some cases military imports. A
major redistribution of income into private hands, will
result in imports of a broader range of goods, particularly
for consumption.
Most, but not all, OPEC countries have established
development plans that provide a general framework for
future development but their capacity to execute these plans
differs. In some countries, but not all, the decisionmaking process is highly centralized and commitments can be
taken expeditiously. As noted earlier, some countries rely
heavily on foreign advisors and contractors to expedite
development spending.
As the following country overview papers indicate, a
major constraint in the development efforts of the OPEC
countries is insufficient skilled manpower and managerial
talent which is characteristic of both the public and private
sectors in most of the OPEC countries. Inadequate ports and
transport facilities are often a constraint to an immediate
increase in imports (representing a source of import demand
as well), but this problem is generally not insurmountable.
Private sectors are typically small and financial and other
institutions, rudimentary. Technology and entrepreneurial
talent will have to be imported. In a few countries, there
are political, social and/or cultural restraints that will
have a significant effect on the pace and direction of
government expenditure patterns.
Almost all OPEC countries have recognized the importance
of emphasizing the building blocks of a modern economy, by
concentrating on the development of modern and adequate
infrastructure. Some have looked beyond and have already
developed ambitious plans for wide-ranging development of
industry and agriculture. The industrialization prospects
of the OPEC countries, however, are uneven. In each case
the extent to which comparative advantages can be identified
and opportunities in these areas maximized will have important
long-term policy implications both for the OPEC countries
and theto
rest
the world.
These relative
cost of
considerations
remain
be of
sorted
out. Moreover,
duplication
industrial

•133
projects in different OPEC countries is not unlikely, and
can lead to serious oversupply problems in world or regional
markets. The importance of early formulation of a sound
development strategy should not be underestimated for the
momentum of plans and projects is likely to prove very
difficult to reverse.
Some countries, e.g., Indonesia and Nigeria, have
important non-oil natural resources and large populations,
potentially providing both ample labor and markets, and thus
offer good prospects. In other cases, major industrial
development will require larger markets than the national
economies will provide. If successful, these efforts could
have a significant effect on foreign exchange revenues and
expenditures. An increase in production for export should
increase imports of raw materials, and semi-finished products,
while the increase in export earnings will expand import
demand over a wider range of goods. Import policies may
tighten, however, to protect infant industries, thus limiting
absorptive capacity. The net effect will probably differ
from country to country.
While diversification of their economies to lessen the
dependence on oil exports is an important goal of most of
the OPEC nations, in some of them the energy sector offers
the best potential for development, if outside technical and
managerial assistance is available. Development of Venezuela's
tar sands, Algeria's LNG processing and transport facilities,
and ambitious petrochemical projects in a number of countries
are areas in which Western technology and services will be
needed.
For some countries, like Indonesia, oil revenues may be
a relatively minor factor in determining the course of
development given its large population, its major development
requirements, and low per capital income relative to potential
oil earnings. Countries like Algeria, Iran and Nigeria will
use oil and gas revenues in developing both the energy
sector and in diversifying their economies.
A potentially large, albeit currently meagerly employed
outlet for surplus OPEC funds is in the non-oil exporting
developing world which can accommodate substantial aid and
investment flows. OPEC bilaterial aid commitments have been
substantial—although concentrated geographically—but
There arehave
alsobeen
smallconsiderably
but growing more
flowslimited.
of investment
disbursements
funds to LDC's from OPEC countries. Many projects in the

- 5 -

primary sector may eventually be included in the OPEC investment portfolio, particularly as the more populated OPEC
countries seek to secure long-term agricultural and raw
material supplies. The importance of these flows to the
less-developed countries will depend upon a complex of
factors including the relative profitability of funds in the
developed consuming countries and in OPEC domestic economies,
the evolution of a greater willingness by OPEC financial
managers to accept investment risks, the availability of
technical services from the developed countries, and the
emphasis OPEC countries place on aid as a political device.
Saudi Arabia, Kuwait, and Qatar would appear to be the
OPEC countries with the least likelihood of being able to
utilize "efficiently" at home the major portion of their
accumulated oil earnings over the next decade or so, given
their high per capita oil revenues, small labor force and
domestic markets, limited natural resources, and problems of
wealth concentration.
On the other hand, several OPEC countries will face
revenue constraints some time during the next ten years, in
the absence of dramatic changes in their export earnings.
Algeria is already experiencing a significant current account
deficit and a relatively large current account deficit is
emerging in Indonesia. Moreover, these countries have not
had the opportunity to build up sizeable assets abroad and
consequently further rapid increases in their imports will
depend upon their ability to obtain external financing. By
the turn of the decade the net excess revenues of most of
Imports Inwill
1980probably
and 1985have disappeared.
the remaining OPEC countries
The country analyses which follow provide estimates of
import levels of each of the OPEC countries for 1980 and
1985. These should be viewed as indicative estimates which
will become increasingly precise with the passage of time.
The point estimates from this paper are presented in the
following table together with forecasts by the World Bank
and the OECD.

9"

- 6 OPEC Imports f.o.b.
(billions of 1974 dollars)

1974

1980

1985

Algeria
Ecuador
Indonesia
Iran
Iraq
Kuwait
Libya
Nigeria
Qatar
Saudi Arabia
United Arab Emirates
Venezuela
Total

3.7
0.8
3.9
8.0
3.5
1.5
3.0
2.5
0.3
3.5
1.6
4.7
37.0

6.5
1.5
9.4
24.4
9.5
3.4
5.2
8.5
0.6
7.5
3.9
9.4
89.8

10..0
2..2
12,.3
32..0
14..0
6..4
6..5
12..6
0.,9
17..4
6..9
12..0
133.2

IBRD c.i.f.
OECD f.o.b.

44
32

92.0
78.5

NA
114

The 1980 estimate of total imports of $90 billion would
represent a real growth rate of 16 percent per annum from
1974. The estimate of $133 billion for 1985 imports represents a halving of the average growth rate to only about
8.0 percent in real terms, and corresponds closely to the
growth in global imports from 19 68 to 1973. The 1980 estimates
are appreciably higher than those of the OECD and the IBRD
(after adjustment for freight and insurance), both of which
divided OPEC into high absorber and low absorber groups for
the purpose of forecasting. The 1985 estimates are substantially higher than the OECD's forecasts in absolute
terms, but the percentage changes for the period are quite
similar.
The country analyses in this paper suggest that only
Iran will have an average real rate of growth of imports of
20% or more in the period 1975-1980.
Saudi Arabia, Algeria
and Libya will have average real import growth rate of less
than 10% a year from 1975 to 1980. During the period 198085 the real growth rate of imports will fall below 10 percent
for all of the OPEC countries with the possible exception of
Kuwait, Saudi Arabia, and the United Arab Emirates. Only in
Saudi Arabia will imports accelerate sharply from the pace
of the previous five years, while the growth rates for Kuwait

- 7 -

and the Emirates remain relatively constant. Iran and
Indonesia should experience a pronounced decline in import
growth during this period.
In identifying possible cases of revenue constraints
on imports, the country analyses have assumed small annual
increases in real oil revenues over present levels for
OPEC as a whole, generally in line with aggregate estimates
by the OECD. Differential growth factors were applied to
individual countries, within a relatively narrow range to
take into account cases of new and depleting reserves. A
significantly different pattern would affect the import
estimates for some countries.
Employing the OECD's growth estimates for aggregate
OPEC oil revenues, the import forecasts in the table above
would imply a current account surplus for OPEC as a whole
of $13 billion in 1980 (in 1974 dollars). The cumulative
surplus over the period 1974-80 would total about $195
billion, also in 1974 dollars.

-8 Iran
The Government of Iran contemplates that it will be
able to utilize fully its annual oil earnings in the very
near future, and some Iranian observers are predicting that
by 1976 or 1977 Iran will become once again a net importer
of capital.* This assessment has been greeted with skepticism by a number of analysts, particularly in light of
Iran's impressive current account surpluses over the past
year and a half. An assessment of Iran's evolving payments
position, however, must take into account the sizeable
outstanding Iranian commitments which even if not fully
implemented will entail major expenditures abroad in the
coming years, particularly for purposes of foreign assistance and domestic project development. This situation and
a desire to sort out domestic priorities have prompted the
recent Iranian reassessment of its spending plans.
The extent to which Iran's plans and commitments will
be translated into actual imports will depend in part on the
ability to alleviate bottlenecks which are becoming increasingly apparent in face of the dramatic surge in import
levels since 1973. But revenue constraints might also arise.
major problem is an inadequate transportation system where
demurrage can run up to 60 days and railroads and warehouses
become periodically overburdened. Another problem is the
lack of skilled labor and a growing shortage of semiskilled
or unskilled labor, which the Iranians estimate could total
700,000 workers during the present plan period.
These two problems may not be as severe or as intractable as commonly believed. More effective utilization of
port capacity in the past two years has enabled a 100%
increase in the volume of cargo entering Iran's seaports.
Moreover, expanded air freight and truck transportation has
been used to alleviate the burden somewhat and use of these
modes of transport should expand further in the coming
years. More importantly, plans are underway to expand both
port capacity and the domestic rail network. Port capacity
should jump from 10 million to 18 million tons during Iran's
current development plan period (ending March 1978), but
continued expansion of the ports and domestic transport
network
will small
be required
if Iran
is Eurodollar
to continuemarket
to expand
* A recent
borrowing
in the
by an
its
imports
at
a
pace
commensurate
with
the
economy's
growth
Iranian bank should be viewed as a step toward familiarizpotential.
ing the international financial market with Iranian paper
and potential Iranian borrowers.

- 9 -

Despite the projected labor gap, the plan indicates
that the labor force will increase by 1.4 million workers,
or by nearly 15%. This would appear to be a conservative
estimate. In the fourth plan period, the labor force in
industry and services alone rose by 1.5 million people. In
addition an increase in the low participation rate (29%),
increased vocational training to upgrade the skills of the
indigenous population and recourse to foreign labor could
fill any remaining gap.
Iran's current development plan (March 1973-March 1978)
calls for expenditures of over $123 billion, with a foreign
component of $95 billion. Foreign exchange receipts are
estimated at $114 billion of which $102 billion would be
derived from energy exports. The revenue projections may be
somewhat high, particularly in the case of energy exports
which at present prices and levels would be overstated by
about 10%. On the other hand it is also unlikely that
merchandise imports, which at the halfway mark totaled about
$22-25 billion, will reach the $79 billion target. We would
anticipate total merchandise imports of about $65-70 billion
in current prices, assuming average annual import price
increases of about 10% a year, with allowances for a reduction in transport costs as a result of the opening of the
Suez Canal. This would imply a merchandise import level in
1977 of between $17 and $20 billion on an f.o.b. basis, in
current prices or about $13 to $15 billion in 1974 dollars.
The current account surplus would shrink to about $3 to $4
billion and could disappear the following year. These
estimates would mean continued full utilization of port
capacity.
Looking beyond, it is clear that the Iranian authorities
are determined to proceed with the rapid development of the
Iranian economy, with initial emphasis on infrastructure and
energy and then on industrial and agricultural development.
Many extremely large projects are planned and a number of
major contracts have already been awarded. These include,
for example, $500 million for. modernization and expansion of
the telephone network, rail contracts estimated at $1.5
billion, $250 million for a wood products complex, $550

- 10 "
million for expansion of the Tehran airport and about $2
billion for nuclear power plants. Other projects in the
billion dollar range are under consideration, particularly
in the energy area. In addition, Iran also expects to
expand considerably its military establishment and import
payments for military equipment could reach $5 billion
annually toward the end of the decade. Agricultural imports
are also likely to be extremely high over the next five
years, perhaps exceeding $2 billion a year by 1980.
The extent to which Iran will be able to continue to
increase imports at a rapid pace in the late 1970's will
depend in large part upon its ability to increase export
revenues. It is difficult to quantify the pace at which
export capacity will increase as a result of Iran's industrialization efforts. The plan's estimate of $4.9 billion
in non-oil exports over the five years ending March 1977,
would imply a 10-15% annual increase during the second half
of the plan period and does not appear to be unrealistic.
It is even more difficult to assess the extent to which
Iran's natural gas exports will be expanded. In Iranian Year
74/75 these exports amounted to about $200 million. Completion of the proposed Kalingas LNG plant and the expansion
of the Iranian Gas Truckline could raise gas export levels
to $750 million or so by the end of the plan period. Large
Iranian gas reserves could enable Iran to expand sharply
this level in the 1980's, if arrangements can be made to
construct costly LNG facilities.
In looking at Iranian import requirements over the next
decade, we find that the experience in the 1960's demonstrates an especially close link between public and private
investment and public consumption, on the one hand, and
Iranian import levels, on the other. This relationship
provides remarkably good estimates of the large increases in
imports in IY 1973/74 and IY 74/75 and indicates that a 1%
increase in the real value of 'these components will prompt a
1.2% increase in real imports. Using this relationship,
based on plan targets, non-military imports in IY 77/78
would run about $11.5 billion in 1974 prices.
We would expect that the growth of Iran's GNP would
continue to taper off toward a more mature level in the Sixth
and Seventh Plan periods. The 16.5% real growth rates
expected in 1976-77 could decline to a 6% level by the mid1980 's which would imply a non-military import level of
about $28 to $30 billion (in 1974 prices). A higher growth
rate is probably not obtainable within the limits of present
plans for expanding port capacity and the internal transport
network
even might
at this
level physical
any significant
of its
military
limits. and
imports
stretch
capacitylevel
beyond

- 11 Saudi Arabia

During the past year the marked increase in the
efficiency of the Saudi Arabian Government to respond
bureaucratically and administratively to developmental
needs bodes well for Saudi Arabia's ability to spend a
substantially larger portion of oil revenues in the coming
five years than had been previously thought. The extraordinary sum of $144 billion in expenditures has recently
been announced for the 1975-80 Development Plan. Progress
toward this developmental goal will require Saudi Arabia
to increase the efficiency of its air and sea ports, to
attract skilled and semi-skilled foreign labor, to expand
an already strained construction industry, and to upgrade
the quality of the Saudi civil service.
The economic development of Saudi Arabia will clearly
be dependent on its ability to import. The Development Plan
anticipates annual import levels rising by 30% a year. This
is somewhat below the increases in Saudi Arabia's imports
in 1974 and 1975, which are estimated at 57% and 43%, respectively. The present facilities in Saudi Arabia are not
capable of handling the plan's target for import growth, but
projects now either under active consideration of construction will gradually alleviate some of the more pressing
bottlenecks to further rapid increases in imports.
There is little question but that Saudi Arabia's requirements are sufficient to accomodate sharply expanding import
levels at least in the short-term. Expenditures for large
and costly capital projects as well as for defense material
could easily increase the still low absolute level of Saudi
Arabia's imports by 207o to 30%, a year if bottlenecks to
delivery and implementation are reduced. There is some
question, however, whether Saudi Arabia will take this course.
The Government is clearly determined not to be stampeded
into ill-conceived expenditures and is taking considerable
pains both to set in place administrative machinery which
can handle a sharp acceleration in investment activity and
to assess carefully both the need and efficiency of the
many (and occasionally conflicting) project ideas which have
been proposed.
Instead, we would expect the trend in Saudi Arabia's
imports to follow a somewhat different course than trends in
most of the other OPEC countries. Over the next decade a
number of the other oil exporting nations may experience
a continuous tapering off of import growth levels from the
rapid
Saudi Arabia,
increases
however,
of 1974may
andprove
1975.to The
be roughly
growth curve
N-shaped,
for

-12 with relatively small increases in the near term,
followed by significant acceleration a few years from
now, as plans and programs become sorted out and major
bottlenecks are breached. Thus, the volume of Saudi
Arabia's imports might increase by less than 10% on
average until the turn of the decade, when the rate
accelerates sharply to perhaps 18 to 20% a year during
the period 1980-85. Service payments over the next ten
years, however, may well increase more rapidly than
merchandise imports.
Saudi Arabia's development plan earmarks almost
$15 billion for the hydrocarbon industries, including
a gas gathering system, five petrochemical complexes,
three export refineries, an aluminum plant and a 3.5
million ton gas reduction steel plant. The $15 billion
target does not include investment financed by the Saudi
private sector or by foreign firms such as oil companies,
which are expected to provide at least 307o of equity capital.
These major industrial undertakings will be sited at Jubail,
near the oil fields on the Arabian Gulf and at Yenho on the
Red Sea. The implementation of these projects will rely on
the ability of foreign joint-venture firms to develop their
own supply lines and services and to recruit manpower first
to construct these installations and then to operate them.
The prospects are good that these projects will be on stream
on schedule between 1978 and 1980.
The largest allocations in the development plan are
for defense and education; $24 billion and $22 billion,
respectively. About $10 billion has been allocated to
school construction while planned military construction
amounts to only $3 billion. By and large, more of the defense budget can be expected to be utilized than the education budget, given the nature of the expenditures involved
and the substantially different capacities of the two sectors.
The majority of defense expenditures will be for sophisticated,
expensive and mobil hardware. In addition, the Defense
establishment already has relatively sophisticated infrastructure, ready access to educated manpower and independent means
of facilitating imports.
Other sectors on which the plan places heavy emphasis,
also do not share the same capabilities of the defense
establishment and will have greater difficulty in utilizing
planned allocations. These have been set at $15 billion for
urban development, $10 billion for water and desalination,
$7 billion for health, $5 billion for social welfare, $5
billion for electricity,
telecommunications.
$2 billion for agriculture, and $1

-13 The principal constaint on Saudi Arabia's absorptive capacity remains the small manpower base and an
extreme shortage of persons with technical skills. Unofficial estimates set the Saudi labor force (including
foreigners) at 1.5 billion men. Traditional restraints
effectively prohibit women from entering the labor pool,
but this situation can be expected to change and with
it Saudi Arabia's absorptive capacity. In order to meet
the manpower requirements of major projects scheduled to
be on stream by 1980, the total labor force will have to
increase by more than 500,000, according to the Plan.
More than 150,000 Saudis will enter the labor force before
1980, with the balance of the plan's manpower requirements
satisfield by an increased level of non-Saudi labor.
The port situation is also a major stumbling block.
Large quantities of unclaimed and uncleared tonage clog
transit sheds. Demmurage charges regularly range between
20-40%, as turn-around time hovers between 30-60 days. In
1974, about four million tons of general cargo valued at
$3.5 billion were imported. Port development plans such as
the addition of 20 new berths at Jidda and 16 at Dammam
and the increasing mechanization of both ports are expected
to raise Saudi Arabia's import capacity to 13 million tons
a year by 1980. Contracts involving $1 billion for construction and equipment have already been awarded for the port
expansion at Jidda and Dammam. The development of new ports,
in addition to Jabail and Yenbo, is also being contemplated.
Not all the solutions to port congestion are physical;
improved port administration could make the ports more equal
to the burden. A first step in this direction was taken
by the Saudi Customs Service's recent decision to drastically
cut-back the number of signatures required to clear goods
from land, sea, and air ports.
The Saudi construction industry is heaviliy overburdened.
Last year's outlay of about $3 billion is projected to expand
by 60% a year, a goal which is unattainable given present
construction techniques in Saudi Arabia. But, the influx of
more labor-saving, capital-intensive construction techniques
can be expected to transform this sector into a responsive
and productive industry during the next couple of years.
The long-term prospects for the development for Saudi
Arabia also depend on the improvement and ungrading of the
Saudi administrative machinery. The Saudi administrative
infrastructure is sometimes frustratingly thin, despite the
large number of Saudi graduates returning from Western,
mainly American universities. It is not uncommon for the

.14 Saudi private sector to attract talented young Saudi
bureaucrats and administrators from their government
positions. Aware of the problem, the Saudi Arabian
Government is developing incentives to attract and t
keep that talent to respond to the administrative ne
of the rapidly expanding economy.

- 15 KUWAIT

Because of the high level of Kuwait's oil earnings and
projected income on foreign investment, its ability to
import will, for the foreseeable future, be constrained only
by what it can physically and economically absorb, by
government policies which impinge on consumption, investment
and imports, and by the comparative costs and advantages of
domestic vs foreign investment. Kuwait's oil earnings are
expected to continue to be well above its import needs
despite a pattern of production cuts which had by mid-1975
brought output down to about 55% of its pre-crisis level.
Kuwait's capacity to import is limited primarily by its
small population (under 1 million) and land area and lack of
non-hydrocarbon natural resources. The effect of these
limitations is reinforced by various government policy
decisions: restrictions on immigration to check the growth
of the non-Kuwaiti population (now 55% of the total);
unwillingness to facilitate investment projects of questionable
economic efficiency or which would degrade the environment;
and an unwillingness to lock itself into a higher rate of
petroleum production that it will want to sell abroad.
The requirement for 51% Kuwaiti ownership of businesses
tends to discourage foreign investment and associated imports.
The government's policy of restricting imports on competing
products to encourage development of new, small industries
will also inhibit the growth of imports over the longer term
as the output of these new industries increases. Thus, the
more rapidly Kuwait's imports of capital equipment increase,
the more likely will there be a shift away from imports of
selected consumption and intermediate goods. Although the
government is prepared to continue to utilize a portion of
its oil earnings for domestic investment and consumption,
pressures for substantial increases in expenditures are not
significant, given Kuwait's present high standard of living,
extensive welfare services and well-developed infrastructure
which have been achieved through judicious use of oil
revenues in the past decade.
The most important factor stimulating Kuwait's imports
is the government's domestic current and investment expenditures. Earnings from petroleum production accrue directly
to the government and contribute to disposable income in the

- 16 private sector as they are spent by the government. The
government's domestic spending has been directed toward
transferring income to its citizens, toward providing a high
level of public services and to a lesser extent, toward
investment (16% of total domestic expenditures from FY 197174 1/).
Kuwait's FY 1975 budget called for total domestic
expenditures of about $3 billion, up 70 percent from FY
1974. Domestic expenditures in the FY 1976 budget, reflecting a balancing of needs and problems associated with
rapid growth, are only 13% above FY 1975 levels. This
approximates the more traditional pattern in the period
FY 1971-74 when expenditures rose by an annual average of
16%. Public consumption will continue to account for a
major share of total budget outlays - about 60 percent.
Although a new development program has not yet been formulated, the 114% projected increase in capital expenditures
in FY 1975, while not fully realized, and the 62% increase
projected for FY 1976 (to over $800 million) indicate that
the government will be encouraging a much more extensive
domestic development effort than it has in the past. Development is likely to be centered in hydro-carbon-based, high
technology, non-labor-intensive industries and in light
industries which are not labor-intensive. Some $3 billion
or more is expected to be earmarked for industrial projects
over the next five years, including a very large LPG plant,
petrochemical plants and expansion of refineries, fertilizer
plants and the oil tanker and general cargo fleets. Public
sector plans include $1 billion in new public housing,
expansion of power and water desalting facilities, improvement and expansion of education, medical, transportation and
communication facilities. Because of the lack of domestic
resources, the import component for these projects will be
very high. The projected improvement in Kuwaiti military
equipment and facilities, which is expected to cost at least
$1.4 billion by 1980, will largely entail imports from
abroad.
The rate of growth of Kuwait's imports in constant
prices during the next ten years may be expected to range
from 10% to 20% compared with an average annual increase of
about 7% from 1968 to 1973 and estimated increases of 60% in
1974 and 40% in 1975 (in current prices). These estimates
assume
thatyears
the growth
in the
1/ Fiscal
end March
31.government's domestic expenditures in the near term will be closer to the FY 1976
budget target than the FY 75 surge which resulted from

- 17 _

the abrupt jump in oil receipts. The lower end of the
range (around 10%) would reflect a continuation of
present fairly conservative policies with respect to
immigration and development, and assumes that development
expenditures will rise more rapidly than in the pre1973 period. An average increase of 20 percent in
imports would reflect a more dynamic government policy
and a willingness to accept an increasing number of
problems associated with sustained and fairly rapid
development of the economy.
A growth rate nearer the lower end of the range is
likely in any event in the earliest and latest years of
the 1975-1985 period. In the early years, if the government attempts to implement an ambitious development program
it will take time to import or develop the necessary
managerial and technical skills and organization. In the
later years, military spending should decline after the
present modernization of the military forces is completed,
and a portion of the greater industrial output resulting
from the new development projects will be in import
substitutes. Based on an estimated 1975 import level
of $2 billion, these growth patterns would lead to an
import level of about $3-4.5 billion in 1980 and of
$5-7 billion in 1985.

7
Nigeria

Nigeria's imports have accelerated sharply over the
past year, putting a great strain on ports and on available
managerial and technical manpower. However, neither constraint
is expected to continue for long, and balance of payments
deficits are expected to develop by 1980, if not before.
The government has liberalized imports during the past
year in order to help control inflation and this is resulting
in a substantial increase in consumer goods imports. At the
same time, development spending is expected to increase as a
result of the government's policy of meeting its manpower
needs by undertaking crash training programs to the maximum
extent possible and of relying on private foreign investment
as necessary to organize and implement many of the larger
and more complex development projects. Major programs are
also underway to recruit foreign experts to fill planning
and technical positions throughout the public sector. The
revenue side of Nigeria's international accounts may, therefore, prove to be the chief constraint on imports by the
early 1980's.
With a large population (75-80 million), a low per
capita income ($270), inadequate physical and social infrastructure, a need to improve the agricultural sector
which provides income and employment for most of the population, and natural resources which include oil, gas, coal
and tin, the scope for development and imports is great.
Nigeria's Third Five Year Plan, covering the period
from 1975 to 1980 calls for expenditures of $45 billion,
compared with actual expenditures of $7.9 billion under the
Second Five Year Plan. Of the $45 billion to be spent under
the current plan, $30 billion is to be financed by government revenues - mostly oil receipts - and the balance
from the private sector. Major emphasis will be on development of infrastructure (roads, communications, airports, and
housing), the agricultural and rural sectors, and large
scale industry to produce steel, pulp and paper, fertilizers,
petrochemicals and refined petroleum products.
The Nigerians will have to turn to foreign sources for
much of the capital goods, consumer goods and services
needed to fulfill the Plan. Imports under the Plan are projected to increase at an annual average rate of 20%, in real
terms, to 95% of oil revenues by 19 80. While experience
under the Second Five-Year would seem to point to nonfulfillment of Plan goals, revenue constraints have been
perhaps
temporarily
peaking
lifted
by and
19 80accelerated
- seem likely
development
as plans outlays
which were
- to

<2<s?
- 19 -

have been implemented earlier finally get underway toward
the end of the decade.
The current plan envisions large accumulations of
reserves during the early years which would be utilized to
finance the deficits projected in the early 1980's. However,
this goal is currently in jeopardy because the projected oil
revenues for 1975, the first year of the plan, are running
well below the target figure. At the same time, domestic
inflation has continued to increase and may cause imports of
consumer goods to increase more rapidly than projected.
Furthermore, unless agricultural production is increased
substantially, Nigeria, which has traditionally been a large
exporter of agricultural commodities, may become a net
importer as higher incomes are reflected in increased
spending on foodstuffs. This shift is already occurring,
causing more funds than projected to be spent on food
imports.
As a result of these factors, Nigeria's surpluses in
the early years may prove to be smaller than projected in
the Five Year Plan, deficits may develop before 1980 and
accumulated reserves may be inadequate to finance the
projected deficits in the early 1980's. Under current Plan
assumptions, Nigeria's imports would be close to $9 billion
by 1980 and as much as $11 billion by 1985 (in 1974 prices).
However, if recent trends persist and consumption is not
restrained, import capacity could be as much as $3 billion
higher in 198Q and Nigeria's ability to realize the import
level projected for 1985 would depend on its ability to
mobilize sufficient external aid.

-20 The United Arab Emirates

The UAE's capacity to import is determined primarily by
consumption and development activity stimulated by the
domestic expenditures of the government of Abu Dhabi, which
accounts for 85% of the oil receipts of the Emirates and
finances most of the UAE budget as well as its own budget.
The import level is also affected, to a lesser extent, by
the general level of economic activity in the Persian Gulf
region, since Dubai, the second most important of the
Emirates serves as a large entrepot center.
Abu Dhabi has projected a balanced budget (of about
$3.3 billion) for 1975. The projected budget calls for a
50% increase in current expenditures over the 1974 level, a
doubling of both Abu Dhabi's contribution to the UAE budget
and its assistance to third countries, and a quadrupling of
development spending. The balanced budget for 1975 is in
marked contrast with Abu Dhabi's previous experience of
governmental surpluses, when oil revenues outpaced expenditures. The disappearance of this budget surplus, which
in 1974 was estimated to have been $1.5 billion dollars,
together with drastic cutbacks in oil production in the
earlier part of this year led to expressions of concern that
Abu Dhabi was facing a financial squeeze. This concern has
proven to be unfounded, as oil production once again picked
up and actual foreign exchange disbursements lagged behind
the expenditures committed in the 1975 budget.
The expenditure targets, especially for domestic
development, are not likely to be realized in 1975 due to
persistence of the constraints which impeded implementation
of Abu Dhabi's development activities even before the fourfold increase in oil prices. The most important of these
obstacles are the shortage of skilled and unskilled labor,
slow implementation of economic plans by a governmental
apparatus beset by organizational and institutional problems
and restrictions on foreign ownership of businesses. The
latter discourages foreigners from taking too active and
direct a part in the economy of Abu Dhabi. However, the
estimated 50% increase in development expenditures which was
achieved in 1974 in real terms indicates that the government
has made progress in overcoming these problems.
As a result of projects now under consideration (see
below), government outlays are likely to reach the levels
projected for 1975 within a year or two. It would appear
that after 1977 further increases in budget expenditures

^ t e

- 21 "
for domestic development will have to be limited to the
amount of any increased receipts from oil, gas, or investment, or to a reduction in actual disbursement of foreign
aid commitments, unless the government is willing to engage
in deficit financing, which the governments in the area
have generally not been inclined, or pressed by their
citizens, to do.
The 1975 budget, which includes new projects with a
total estimated value of well over $600 million, continues
Abu Dhabi's pre-1974 emphasis on the development of infrastructure services while embarking on an extensive industrialization program. Abu Dhabi's plans include the
following infrastructure projects: a $300 million expansion
of its port, $30 million extension of its international
airport, construction of a road to the Qatari border
expected to cost over $60 million, construction of general
hospitals ($80 million) and over $100 million in power and
water projects. In addition, Abu Dhabi's industrialization
program includes: the Das Island LNG complex, expected to
cost $1 billion, a $40 million oil refinery, a $20 million
cement plant, a $20 million flour mill, and construction
of new hotels worth more than $70 million. Abu Dhabi has
also indicated preliminary interest in an aluminum smelter,
a small steel mill, petrochemical plants, and a large civic
and sports center, although the magnitude of expected
outlays has not yet been determined.
Dubai has also embarked on a program to expand its
trade and services capacities and to diversify its limited
industrial base. Decision-making in Dubai is concentrated
in the hands of Sheikh Rashid and a small group of advisors
and, thus, decisions are made more expeditiously than in
Abu Dhabi. Furthermore, Dubai encourages foreigners to
help implement the economic decisions. Dubai has recently
completed a $70 million deep water expansion of its port
and has started construction of a $300 million dry dock.
In addition it plans a $400 million LNG plant, a $125
million trade center, and a $70 million cement plant.
The UAE (Federal) budget also provides a source of
development expenditures, primarily for infrastructure
projects in the poorer, non-oil producing Emirates. In
1974, the Federal Government spent about $40 million on
development and has earmarked about $244 million in 1975
for development projects. The major projects are in the
sectors of housing, and hospital construction; roads
(approximately $50 million), ports, electricity and water

.22 -

desalinization. The UAE Federal Government also plans to
expand its military forces and military imports are expected
to run $100-$200 million annually over the next five years.
In addition to expenditures by Abu Dhabi, Dubai and the
Federal Government, the only other source of any major
expenditure is the oil revenue accruing to the Emirate of
Sharjah. Infrastructure projects totalling over $60 million
as well as a $50 million expansion of its port facilities,
extensive construction of hotels and a $25 million cement
plant have been initiated there.
With little domestic agriculture and industrial production as yet, the UAE economy is almost wholly dependent
on the import of goods for consumption as well as for investment. Import levels have followed the pattern of the domestic
expenditures of the government of the UAE, Abu Dhabi and
Dubai, and more than doubled from 1971 to 1973 and almost
doubled again in 1974 to about $1.6 billion. Imports for
1975 are projected at about $2.4 billion or 47% over the
1974 level.
While substantial increases (perhaps 20-30%) may
continue over the next couple of years, as the UAE's new
wealth reflects itself in increased development and private
consumption, budget constraints coupled with domestic production of import substitutes can be expected to result in
smaller increases in subsequent years. As a result, imports
from 1975 to 1980 should increase by an average of about 15%
per year, leading to an import level in 1974 prices of
almost $3.9 billion in 1980. After 1980, as basic infrastructure requirements are satisfied, expansion of the
military is completed, and the disruptions caused by rapid
industrialization and competing development in the individual
emirates begin to be felt, the small size of the population
(about 350,000, the majority of whom are foreigners) and the
barren land will limit import growth to about 10% a year.
If oil exploration in the other Emirates is successful,
however, these states can be expected to pursue an independent development effort and imports will continue to grow
rapidly. A range of imports of $6-8 billion (in 1974 prices)
is therefore possible by 1985.

- 23 Iraq

Iraq's pattern of foreign trade during this decade
will be fashioned from an ongoing balancing of objectives
and performance of the country's development plans. The
financing requirements of large prospective levels of
imports appear to be within the level of foreign exchange
receipts that the plan will provide over the span of
several years, but the surplus is not likely to be so
large as to encourage grossly inefficient expenditure,
nor oil revenues so predictable as to preclude financial
stringencies over
short intervals of time. The first
years of the development program should see the implementation of many infrastructure projects that will ease
bottlenecks to further development and, being capable of
multiple productive uses, should prove to be economically
worthwhile. The subsequent stages of development, and
their success cannot be as readily assessed.
The energy sector is being given high priority by
the Iraqi authorities and further development of this
sector is likely to result in a significant "recycling"
of oil revenues into Iraq's energy development. Petroleum
exports, currently about 2.4 million b/d is considerably
less than can be realized with additional investment.
Output is more or less restricted to current levels by
the capacity of transit and terminal facilities. Heavy
investment such as the Hoditha-Rumaila pipeline and new
terminals on the Persian Gulf, due to be complete in the
next year, should raise capacity significantly. Furthermore, there has been little exploration for oil in Iraq
during the past decade, and it is believed that a $1.5
billion exploration program to be carried out during the
next five years will substantially increase proven reserves.
As part of a general pruning of its development plan, and
in response to possible continued sluggish growth in the
consumption of petroleum, Iraq recently lowered its
targeted 1980 production capacity from 6.5 million b/d to
around 4 million b/d, but this level could be exceeded
since the change in target levels was not accompanied by
corresponding changes in capacity expanding investment.
Under the influence of expanded budgets and development plans, imports which tripled between 1973 and 1974
should continue to increase rather rapidly. The development budget for 1976-1980 calls for expenditures of $34
billion, or triple the previous five-year plan, of which
$10 billion is targeted for agricultural development.

J93
Industrial projects involving production of fertilizer and
farm machinery are important steps toward achieving the goal
of agricultural self-sufficiency. The plan also provides $7
billion for education, communication and transport which
will expand both import and export capacity substantially.
In particular ports will be expanded from a capacity of 1
million tons in 1973 to 2.5 million tons by 1980, while
overland connections to a free port that Iraq has arranged
to use in Kuwait will be improved to relieve any potential
port congestion that might arise before the completion of
the port expansion program. Many of the individual projects
that make up the plan are drawn from a backlog of projects
that Iraq has studied for years, and,considering the large
number contracted for on a turnkey basis, the large majority
should be completed according to schedule, significantly
improving an implementation rate that only reached 65%
during the 1965/66 - 1969/70 development plan.
The course of economic development should affect the
demand for imported goods in several ways. First, the
demand for capital goods, most of which will have to come
from abroad, should be sustained by that projected high
level of capital investment. Second, to the extent that oil
revenue is redistributed as disposable income to the private
sector the demand for consumer goods, and consequently for
imports of consumer goods will rise. We would expect,
however, that government investment would continue to have a
substantially greater impact on the demand for imports than
funds transferred to the private sector, especially in light
of the governments emphasis on import substitution for noninvestment goods.
The government has influenced the level of private
imports, both directly through its foreign exchange licensing procedures, and indirectly through the budget's influence on private disposable income, hence on the demand
for goods.
This influence was exercised forcefully during
the period 1969/74 when, anticipating a fall in oil revenue,
the growth in real private disposable income was completely
stopped. In the future, the policy of promoting the production of import substitutes should restrict the level of
imports without recourse to the traditional controls. The
government has in fact begun to stimulate private demand by
granting extensive tax cuts and expanding welfare programs.
Since the current account is very close to being in balance,
it is to be expected that temporary shortfalls in revenue
will occur in the near future. Iraq's recent borrowing of
will
public
rather
$500 meet
million
expenditure.
than
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byfrom
disrupting
shortfalls
the Eurocurrency
by
therecourse
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market
toof
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suggests
either capital
private
that itor

.a
- 25 -

The expansion of various sectors of the economy should
be sufficiently in tandem to avoid heavy reliance on external
financing. Merchandise imports may be expected to reach, in
constant 1974 prices, $9.5 billion in 1980, and $14 billion
in 1985, while the current account balance which showed
a small surplus
in 1975 can be expected to gradually
reach a surplus of about $4 billion in 1980 then to decline
to a deficit of perhaps $1 billion in 1985 (both in current
prices) .. Balanced economic expansion will result from
an expected high rate of implementation of the current development program and an expanded program for 1981/85, while
attaining a petroleum production level of 4.5 million b/d by
1980, and maintaining it at that level through 1985. The
goal of agricultural self-sufficiency may not be met, but
the growth of agricultural imports should stop. On the
other hand, imports of raw materials and capital goods should
increase markedly as private income and capital expenditures
under the development plan increase.

r^

- 26 Algeria

The substantial current account deficit projected for
1975, despite continued restraints on consumption through
strict controls on wages and nonessential imports, clearly
demonstrates that the most significant constraint on Algeria's
ability to import will be the availability of foreign
exchange. As a result of a deterioration in the trade
account and some prepayment of external debt, Algeria's net
foreign reserves dropped by 75% from September 1974 through
May 1975, to $428 million, or less than 2 months' imports at
the projected 1975 rate. (A $350 million increase during
June is attributable in large part to recent borrowings.)
The crucial question is whether Algeria can obtain sufficient external financing during the next few years to enable
it to implement its development program as scheduled and
whether development of its gas reserves will proceed at a
sufficiently rapid pace to eliminate the resource gap after
1980.
Algeria's economic development program is dominated by
intensive efforts to industrialize as well as to meet the
country's substantial needs for food,imports of which are
projected at over $1 billion for 1975. Key areas of effort
include continued rapid development of basic industries
(hydrocarbon, steel, fertilizers), accelerated growth of the
processing industries (metals and construction materials)
and increased production of consumer goods.
The potential for absorption of imports in Algeria is
significant given: 1) the need for infrastructure development as a result of the low priority which has been given to
this sector in the past, 2) the large potential labor supply
based on a large population, a rapidly increasing labor
force and a high level of unemployment and underemployment
which is estimated at 12 percent of the labor force, and 3)
lack of additional land suitable for cultivation which means
that a large volume of food imports will be required at
least until 19 80 as Algeria attempts to increase the productivity of land now under cultivation.
The Algerian Government has shown itself able to make
decisions to commit funds for domestic development purposes.
Actual expenditures under the 1970/73 Plan were 20% higher
than projected although, as a result of delays and constraints
in project preparation, adoption of new techniques, and
unavailability of qualified manpower and basic raw materials,
a backlog of projects remained at the end of the Plan period.

- 27 -

A

The 1974-77 Plan calls for public investments of $27 billion,
triple the total expended under the previous plan, with an
import component of about $10 billion. In 1977, the last
year of the present plan period, imports of investment and
consumer goods are expected to reach a level of $8 billion
under the original plan estimates.
Difficulties in achieving these targets are likely,
however, primarily because of an increasingly serious
foreign' exchange constraint. The 1977 target would imply a
current account deficit of $4-5 billion, the full financing
for which may not be readily available. Another major
factor in Algeria's evolving payments position is repayment
of principal and interest on its public external debt, which
is already running in the neighborhood of $600 million on an
outstanding debt level of almost $3.5 billion. In order to
avoid adding to its debt burden in the near future, Algeria
is seeking longer term credit to cover present current
account deficits.
Inadequate infrastructure is emerging as another
constraint. Unless greater emphasis is given to infrastructure which is to account for only 14 percent of
total expenditures in the present plan - severe bottlenecks
will emerge with consequent implications for the efficiency
of industrial undertakings and import levels. The government must also train and educate its labor force to operate
an evolving industrial economy. At present the lack of
skilled technical and managerial workers causes serious
problems which may ultimately result in investment slippages.
Algeria's imports will probably be affected mainly by
its ability to expand its gas exports and by the amount of
external capital Algeria can obtain. If Algeria is successful in obtaining the external financing it needs, it should
be able to maintain an 8 percent real growth in GNP - the
1974 rate - and based on present income propensities to
import, the level of merchandise imports in 1974 prices
would reach $6 to $8 billion by 1980 and $10.5 to $12.5
billion by 19 85. We would expect imports to be in the lower
end of these ranges because of foreign exchange constraints,
and even these levels will not be achievable without a
substantial increase in export earnings.

Qatar

Qatar's use of its oil revenue to further the country's
economic development will be restricted by its small population and lack of skilled indigenous labor force. However,
imports of consumer goods, as well as intermediates for
domestic production of consumer goods, should grow substantially.
Capital investment is largely in the hands of the
government, although the absence of comprehensive national
income data precludes an accurate assessment of the size and
the influence of private investment activity on imports.
The major thrust of the development effort has been and will
continue to be in the area of infrastructure facilities such
as communications networks, power plants, and power transmission facilities. More recently, decisions have been made
to undertake a number of industrial projects including an
asbestos cement plant, gas-based petrochemical plants, worth
over $200 million; a $200 million steel-rolling mill, and a
$100 million natural gas liquefication and ancillary facility. These projects are not expected to come on stream
before 1977, and some slippage in the time table can be
expected.
The development budget which targets nearly $500
million of capital expenditures for 1975/76 should be
difficult to implement. This would represent an increase of
more than 200% over the previous year's budgeted capital
expenditure, which in itself represented an increase of over
130% over the 1973/74 budget. These increases are difficult
to administer as Qatar does not have a centralized planning
authority, and the administrative machinery for planning and
executing government projects is still in its formative
stages. As a result, actual expenditures are usually but a
fraction of budgeted expenditures (only 65% in 1972).
Efficiency is also hindered by public policy which guarantees jobs to all nationals and requires that middle and
upper management slots in many of the proposed heavy industries be reserved ultimately for Qatari citizens.
The industrial sector has grown substantially during
the recent past. Annual cement production expanded by 21%,
frozen shrimp, 15% and electricity generation, 13%. Moreover, new activities, such as the production of flour and
desalinized water, have been introduced. There are indications, however, that further expansion will be limited.
First, the shortage of labor in Qatar has resulted in the

-29 _
use of substantial imported labor, with the result that
Qatari nationals constitute only a small portion of the
economically active work force. But industrial development
in the countries which are important sources for Qatar's
labor (for example, Iran and Oman) has restricted the flow
of labor to Qatar and substantially increased wage rates.
This trend should continue and labor should become increasingly scarce and expensive. Moreover, there is major concern
over further dilution of the national character of the labor
force which will be a restraining influence.
Second, some
key sectors have been neglected. Agricultural production,
after a decade of flourishing growth, began to decline in
1972 as agricultural labor left the land for more renumerative employment in construction. Also until recently, when
the government began to invest in industrial plants, private
investment was channelled into construction and trade rather
than into industry, because of the higher short-term profits
in these activities and the minimal requirements for capital
and technical know-how.
In the past the public sector has redistributed a
substantial part of its oil earnings through its current
expenditures, and this policy should continue in the future.
Public expenditures support a growing social welfare program.
in the areas of housing, education and health. These
programs, as they supplement the income of the private
sector, will stimulate the demand for consumption goods and,
with limited domestic production, the demand for imported
consumption goods. A rough indication of the magnitude of
income redistribution is the level of annual current government expenditures which in the past has amounted to 50% of
the previous year's oil revenue.
Last year, Qatar's balance of payments showed a current
account surplus equivalent to 75% of its oil revenues, a
historical high. This is a natural reflection of the
difficulty of making prompt adjustments to the surge of oil
revenues, but in the next few years the absorptive rate is
expected to increase substantially. Qatar can be expected
to increase its merchandise imports by 13% a year to about
$600 million in 1980, and by 9% annually thereafter, reaching $900 million in 1985, (both in 1974 prices).

jiri

- 30 Venezuela

The growth in Venezuela's imports will be subjected
to financial constraints by 1978, when the current account,
having shown substantial surpluses in 1974 and 1975, again
moves into deficit.
Oil revenues are expected to fall 12% between 1974
and 1975, and Venezuela planning authorities anticipate
that they will continue to fall at a rate of 5% per year
at least through 1980. These declines, resulting from a
fall in oil production to a level that currently stands at
76% of capacity, are attributable in the short run to
decreased demand for petroleum and perhaps to production
rationing as well. The depletion of oil reserves, which
has reduced productive capacity by 97> since 1973, will
compel reduced levels of production in the long term
unless new petroleum sources are developed.
The ambitious development plans of the Venezuelan
Government will require large amounts of foreign exchange.
Investment in transportation, communication and power
infrastructure is well advanced. The new Government of
President Carlos Andres Perez has greatly accelerated
long-standing programs for the development of Venezuela's
steel, petrochemical and aluminum industries. Venezuela
has nationalized the iron mines and will do the same with
the petroleum companies during 1975. The Government
intends to move quickly into new industries, such as
aircraft and shipbuilding, and has budgeted large inincreases in credit to be extended to the agricultural and
industrial sectors. Large new investments will be necessary
in the petroleum sector, particularly in the Orinoco tar
sands, if Venezuela is to continue to be a major petroleum
producer in the future. Notwithstanding such hopes, the
National Planning Office is just completing a Fifth National
Plan which, according to the press, projects a gradual
decline in the output of petroleum, which is to be offset
by a general increase in the other economic sectors.
Plans for capital intensive and highly sophisticated
industries will require a level of managerial and technical
skill that is very scarce, and substantial imports of
capital goods. In light of the shortage of labor and
apprehension over the disruption that sharp increases in

o2£o
- 31 demand can cause, a substantial part of the oil revenues
in 1974 and 1975 will be held abroad to sterilize its
impact on the domestic economy, but will be drawn down
over time to finance the foreign exchange costs of the
investment program.
For 1976, recent estimates by the Finance Ministry
call for an "austerity program" in order to minimize the
impact of an estimated $1 billion decline in government
income from the petroleum industry resulting from declining
output as well as anticipated effects in the post-Nationalization period.
The total ordinary budget for 1975 amounts to $6.6
billion, as compared to actual cash outlays of $5.1 billion
in 1974 and $3.4 billion in 1973. Roughly 40 percent or
$2 billion of the 1974 ordinary budget was devoted to domestic
investment, but 47 percent or $3.8 billion is allocated to
investment in the 1975 budget.
The major persistent obstacle to long-term development in Venezuela, is the economy's lack of diversification
and a failure to mobilize domestic resources outside the
petroleum sector. Agriculture accounts for less than 5
percent of GDP and is technologically backward by Latin
American standards. The manufacturing sector is high cost
and highly protected. Skilled labor and managerial and
scientific talent are in short supply despite very large
educational expenditures over the past decade. Income
distribution is extremely skewed. On the other hand,
transport, communications, and power infrastructure are
well advanced, and the natural resource endowment is
exceptionally rich.
Venezulan imports rose 65% in 1974 and should increase
about 40% in 1975. But, as a result of an emerging foreign
exchange constraint, the growth in imports should decline
sharply, perhaps to 20% in 1976. The current account may
go into deficit in 1977, and import growth may not exceed
10%
a year through 1980. The severe financial constraints that will become apparent by then, and the
completion of the first stages of the development program
may further reduce the growth in imports to 5% per year
during the period 1980-85. At these rates imports (in 1974
prices) will amount to about $9.5 billion in 1980 and $12
billion in 1985.

- 32 -

9(
Ecuador
Ecuador should have the capacity to absorb oil revenues
over the next ten years under any reasonable scenario of
production and prices. Public sector infrastructure is
undeveloped and the country is starting from a low level of
economic development. Increasing imports of industrial
inputs are easily absorbing Ecuador's foreign exchange at
the present time.
Ecuador's 1973-77 Development Plan presents a comprehensive strategy for maximizing the impact of petroleum
revenues and achieving self-generating growth. The plan
calls for: (a) expanding and improving the physical infrastructure by extending transportation, energy and other
basic facilities into new potentially productive areas and
improving such facilities as now exist, (b) expanding and
improving the provision of services and technical inputs
needed for raising productivity in agriculture, industry and
supporting services and (c) expanding and improving the
provision of education, training, health and other social
services to upgrade the quality and raise the living standards
of the labor force and the population generally.
In order to implement the Plan efficiently, the Planning
Board has been considerably strengthened with personnel and
financial resources. Serious efforts are also being made to
strengthen and accelerate the process of project preparation
in the Planning Board and public agencies. Government
planners have just completed an inventory of projects, and a
Pre-Investment fund for financing pre-feasibility and
feasibility studies through final engineering design has
been established. Complementing these efforts, the Government he
segregated from the budget the additional revenues accruing
to the Central Government from the increase in petroleum
prices. These resources, accumulated in the National
Development Fund, will finance investment projects as they
become ready, over and above those already included in
budgetary appropriations.
The Government plans to invest $1.7 billion during 1974-78,
with emphasis on rural infrastructure projects and manpower
development. Imports for the same period are expected to
reach $3.8 billion of which close to $3 billion are expected
to be producer goods—which should impact favorably on
future growth rates.
The progress of the country's growth has emphasized
industrial development. In 1973 industrial production

-33 -

o^r^

increased by 8% and by 12% in 1974. Revenue increases from
rising oil prices have enabled Ecuador to sustain real
growth in manufacturing and agriculture. Availability of
foreign exchange reserves has enabled Ecuador to decrease
tariffs on imports of materials inputs and intermediate
goods, encouraging domestic industrial growth. Imports of
capital goods for industry increased 112% in 1974 over
1973's level. The principal item in this category of
imports was industrial machinery which grew by about 120%.
Construction has been another growing sector with an
average annual growth in output of 9% over 1972-1974. At
present the capacity for producing inputs for construction
is severely limited. Demand for capital goods and intermediate inputs for construction has been met by a substantial
increase in imports, doubling from 1973 to 1974. Government
policy has been to subsidize imports of construction materials,
especially cement and iron, in order to increase national
production in other sectors.
Total imports in 1974 increased by 72% over 1973.
Although the annual rate of increase of imports should
slacken in succeeding years, we anticipate no serious obstacles
to utilization of Ecuador's oil revenues through the 1970*s.
Tariffs have been reduced and the Government is offering
expanded credit facilities for imports. Ecuador should have
no port capacity bottlenecks to slow import growth.
There are only two elements in Ecuador's development
policy which signal a lower level of imports in 5 years
time. The first of these factors is a conscious part of
the GOE development goal.
Ecuador's industrial development is primarily based on
import substitution in the consumer goods sector. The
country is beginning to enter a period of substitution of
imports of raw materials, intermediate products and small
capital goods and as Ecuador's industrial sector expands it
will require lower levels of imports of many of these items.
Imports of larger and more sophisticated capital equipment,
however, should continue to increase at a significant pace
in the foreseeable future.
An associated second factor which will affect Ecuador's
import trends over the next five or ten years results from
emphasis on capital intensive and technologically led
development. As a result of tariff and tax reductions
benefitting capital inputs in industrial projects, industrial
growth in recent years has been heavily labor saving.
Employment has lagged behind the forecasts for the 1973-1977
Plan and underemployment is likely to remain a social problem

- 34 -

3

9

in the coming years. Income will probably remain skewed in
the absence of a major income redistribution effort.
As a consequence, the growth in the internal market for consumer
goor^s will be somewhat limited.
Thus the growth rate of imports should average about
10% to 15% per annum, toward the end of this decade, and
decline perhaps to about 8% a year during the first half of
the 1980's. If the Government continues its conservationist poliq
in petroleum production, it should be able to absorb revenues
quite easily. But if oil production is greatly expandec' in the
next five to ten years, revenues will probably far exceed
the country's import level in the next decade.

- 35
Indonesia

c*/<£<f

Indonesia's oil revenues are of relatively smaller
magnitude than other OPEC members, comprising 18% of GNP
($19 billion in 1974). At the same time, with a per
capita income of $150, the need for capital investment
and the scope for growth is large. Accordingly, Indonesia
should continue to have little difficulty in utilizing its
oil revenues.
Instead Indonesia will probably continue to face
financial constraints as it seeks to enhance domestic
economic growth.
The small current account surplus in
1974 is expected to disappear in 1975, and a growing deficit
to appear thereafter. To avoid this development the
government hopes to double petroleum output by 1980,
develop LNG exports, and to encourage the production of
important import substitutes such as rice. The financial
constraint may not be felt for several years if external
aid and private capital flows continue at their current
levels.
The most important physical obstacle to import
expansion is Indonesia's limited port capacity. Cargo
handling capacities in almost all ports are relatively
low,
Equioment and navigational aids remain inadequate.
Wide-ranging port projects which include, the design and
engineering of new quays and warehouses, construction,
dredging and dockyard rehabilitation, are to be completed
in the next two to five years and should offer considerable
relief to the physical limitation of ports.
Administrative inefficiencies arising from poor
organization and low levels of trained manpower have
hindered the effective utilization of external assistance,
and retarded the speed of development. In fact, Indonesia
was unable to utilize fully available external aid in 1974,
and the size of the year-end aid pipeline rose to an
estimated $1.7 billion. Reforms involving Pertamina,
Indonesia's state-owned oil company, will interrupt the
schedule of investment spending in a broad range of
activities, until the reorganization is complete.
Indonesia's inadequate infrastructure has hindered
the growth of import substitutes. For example, fertilizer
and insecticide distribution has been slowed by the
irregular and expensive transportation system. The second
five year plan has allocated 19% of its funds to the
development of agriculture and irrigation, and 1570 to
communication
and transport
related
activities, which may
aid
in the development
of import
substitutes.

- 36 -

In the last three years, Indonesia's imports have
nearly tripled, soaring from $1.7 billion in 1972-73 to
an estimated $4.5 billion in 1974-75. During the next
decade the largest increase in import volume is expected
to come from capital goods imports necessary to fulfill
the country's ambitious development goals. The share of
imported consumer goods should fall from 31.9% in 1973/74
to about 17% in 1980 and perhaps 10% in 1985. The share
of intermediate goods and raw materials should rise somewhat from its 1973/74 level of 37% to about 50% in 1980
and beyond. Merchandise imports in 1974 prices could
reach about $9.5 billion by 1980, and around $12.5 billion
by 1985, if petroleum revenues can be doubled through
expanded output. Even then Indonesia will probably be facing
persistent current account deficits over the next decade
which will require continued flows of foreign aid.

- 37 -

J160

Libya

The recent increases in oil prices have radically
increased Libya's national income to $4,600 per capita (in
1974). The maintenance of a high level of investment, to
ensure that these income levels are sustained in the face
of depleting oil reserves, has resulted in correspondingly
high levels of imports. The future growth of imports,
however, may be restricted if inadequate infrastructure
facilities — especially port congestion--and shortages of
skilled manpower cannot be overcome. Programs are now in
train
to deal with these problems but in the near term
they will remain important constraints to absorption.
Gross capital formation has traditionally accounted
for some 30% of GNP. This has been a major stimulant to
imports as increases in capital goods imports have generally
amounted to about 657o °f increases in gross investment. Substantial
capital formation has also engendered a rapid growth in
the non-oil sector of the economy, which expanded from
33% to 50% of GNP between 1970 and 1973.
Libya is presently in the last year of its three year
Development Plan (1973-1975). Expenditure targets of the
plan were increased by over 120% to $8.5 billion in light
of increased oil revenue. The plan continues the emphasis
of previous plans on infrastructure development (1/3 of
total outlays), with emphasis especially on port expansion, electrification, housing and public works. It also
gives high priority (22% of total outlays) to increasing
agricultural output in order to reduce Libya's reliance
on food imports.
The Plan's allocation to industry, which comprises
13% of total outlays, seeks to maximize the use of the
domestic resource base and produce goods for which there
is a large domestic demand.
Thus, most of the investments
are being put into plants for construction materials and
food industries. Complementing the import substitution
goals of Libya's agricultural and industrial development
plans is the emphasis that the Plan gives to the expansion
of the export-oriented oil industry and ancillary facilities.
New projects either under way or proposed include:
a $150 million desalination and electrical power complex in
Tobruk--part of a $675 million plan to build similar complexes
throughout the country; a $100 million oil refinery;

>

/

a $230 million petrochemical plant; construction and
expansion of cement plants worth over $150 million; a
$240 million expansion of Tripoli harbor; new housing
projects worth over $200 million; and a $100 million
prefabricated housing factory. In addition, an experimental nuclear power plant, new roads, bridges, as well
as clinics, schools and universities are either under
construction or being planned.
The revolutionary government has also included
ambitious social goals in its development plan. It seeks
to eradicate illiteracy by 1980 through increased outlays
in education, especially in the construction of schools
for children and illiterate adults, and universities. In
addition, the government seeks to redistribute income to
the low-income groups through increased taxation of the
upper-income classes and increased government expenditures
on health, education, housing and food subsidies. These
programs are only in their initial stages and the problems
they seek to alleviate are so large that Libya's consumption
base will not be significantly widened in the next ten years
in the absence of substantially larger expenditures than
now contemplated.
Implementation of the Development Plan has been
hampered by the continued intensification of manpower
constraints arising in part out of the government's agricultural support program which discourages migration from
the farm despite the increased demand for non-farm labor
engendered by the Plan. Thus, 1973 development expenditures fell 27% short of plan targets and it can be expected
that total actual expenditures will fall short of the Plan's
targets.
Although Libya's small population of 2.3 million
should encourage the use of capital intensive production,
both skilled and unskilled labor are required at levels not
presently available indigeneously. Only one quarter of the
population is in the active labor force, due to both the
age distribution of the population, the effects of the
literacy campaign in delaying initial entry into the labor
force and a very low (7%) participation rate for women. As
a result, Libya has permitted substantial immigration, and
the foreign component of its labor force has increased from
8% in 1971 to over 50% in 1975.
Libya's program to develop its infrastructure and
train its manpower will not have an immediate impact and

the implementation of capital projects should become increasingly difficult during the near term. Shortages of labor will also put pressure on
wage rates. These constraints could discourage the maintenance of investment at the traditional proportion of 30%
of GNP. If this proportion should fall, the decrease in
the level of capital goods imports would probably not be
entirely offset by increased levels of consumer imports.
Moreover, this flagging growth in import levels could be
reinforced by the falling growth rates of GNP that are
bound to result from a projected leveling off of real
oil earnings.
In addition to manpower and infrastructure problems
and lack of resources other than oil, Libya faces a financial constraint on the revenue side in the absence of new
oil discoveries. Although it had a $2.3 billion current
account surplus in 1974--primarily due to the difficulty
of making prompt adjustments to the surge of oil revenues,
Libya's strict oil conservation policies will bring its
current account balance to near equilibrium within a few
years and make it a net importer of capital in the longterm. Libya's concern for its depleting oil resources,
which accounts for 987> of its export earnings, is reflected
in the heavy investment in oil exploration and in the
emphasis in the development plan on import substitution
and export diversification.
Since 1973, imports have increased.in nominal terms
at a rate of about 35% a year with imports in 1975 expected
to reach about $4.1 billion. The concentration on developing improved infrastructure facilities and a wider industrial
base should result in an annual growth rate of about 870
during the next few years to a level of $5.2 billion in 1980.
Between 1980 and 1985, we can expect the annual growth rate
of imports to fall to about 5% as domestic industrial
production replaces imports and increased capital investment slackens off. Thus, in 1985 we can expect an import
level of $6.5 billion. These levels would suggest a
current account position that will be approximately in
equilibrium in 1980, perhaps moving into a deficit of about
$2 billion by 1985.

- 40 -

Policy Implications

Objectives
The consumer countries have several basic policy
objectives in their relations with OPEC countries which
would seem to include:
a) Encouraging establishment of an OPEC
oil pricing policy which would simultaneously
permit a more efficient allocation of world
resources and allow the OPEC nations to obtain a
reasonable return on their major resource.
b) Avoiding fruitless confrontation which would
create greater instability in the Middle East,
increase the friction between consumers and
producers in general, and render the economic
objectives of both the consumer countries and
OPEC difficult to acheive, and
c) Ensuring that current and prospective OPEC
oil earnings have minimum disruptive effects on
the world economy and its growth prospects.
The rise in oil prices has increased OPEC claims on
the consuming countries' goods and services without increasing OPEC provision of real goods and services. These
claims may be exercised in two ways — OPEC importation of
goods and services, or purchase of financial assets, — but
each case will represent a loss in well being to the oil
consuming countries. The first policy objective addresses
itself to the attenuation of this burden.
The discussion of OPEC absorptive capacity touches
largely on the last two policy objectives, through its
determination of how rapidly the transfer of real resources
from the consuming to the producing countries will proceed.
It must be stressed that, in the face of continuing high oil
earnings, satisfaction over the lower than anticipated OPEC
current account surpluses which have been evolving indicates
a preference for substantial OPEC imports over OPEC foreign
investment — that is for the rapid transfer of real resources

- 41 This preference, however, involves a number of complex
considerations which do not yet appear to have been adequately
explored. A number of arguments have been posited in support
of each option, but many of them fail to hold up under
intensive scrutiny. A brief discussion will help sort
through the various policy considerations that spring from
the absorptive capacity issue. From this discussion the
conclusion emerges that attempts to influence the timing of
the flow of real resources to the OPEC countries should be
discouraged and that this would best be left to market
forces.
Level of Transfer of Real Resources
If the obligations that the consuming countries have
incurred are to be honored, there will eventually be a
transfer of real resources. The choice is to transfer now
or to transfer over the future. The quantity and value of
the resources transferred to the OPEC countries will naturally depend upon the nature of the claims they hold, the
productivity of capital and the course and anticipation of
future prices. That is to say that the real resources
transferred will be the same at any two dates if the rise in
export prices is sufficient to offset the pecuniary return
on the obligations held by OPEC. Even though anticipated
general price movements will be a determinant of pecuniary
return, recent history suggests a divergence between general
and export price increases, and indicates a less than complete
interest rate accommodation to the rate of inflation.
Accordingly, investment of OPEC revenues abroad could result
in a lower total transfer of real resources to OPEC over
time.
The oil producing countries, however, are not likely to
be indifferent between transferring the same quantity of
goods at two dates. First, goods transferred now could be
put into productive use, and so generate more goods than if
the transfer of real resources was deferred (these might
come through additional trade with consuming countries).
Second, the present valuation of future consumption is
likely to be lower than that of current consumption.
Capacity to Transfer Real Resources
Deferred transfer would in some respects, give the
consuming countries greater flexibility to determine the
conditions upon which the transfer would take place. This
flexibility however may not lead to formation of a greater
productive base from which to produce goods for future

transfer. Any change in the level of productive capacity
from what it would have been in the absence of real resource
transfers will depend not only upon the investment
propensity of the consuming countries' private sectors, but
also upon government policies of the consumer countries.
First, the availability of financial capital does not
automatically ensure increased demand for investment goods.
The rate of capital formation will be sensitive to the level
of idle capacity and this in turn will depend upon government policy directed toward influencing the level of economic
activity. It will also depend on the sources that private
firms traditionally employ to finance capital expenditures,
particularly for those firms which rely on internally generated funds.
Second, exports directly and through the multiplier
effect also generate income that can finance investment
activity. Moreover, exports represent additional effective
demand that will result in increased capacity utilization
which in turn will spur demand for investment capital.
Finally, there is a fundamental question of whether an
expansion of capacity requires foreign capital or income
generated from abroad. This might be as readily achieved
by appropriate domestic economic policies to influence the
size of the domestic capital stock and the uses to which
it will be applied.
The Short Term Financial Problem
While OPEC investment in the industrial countries would
help increase their capability to eventually redeem OPEC
claims through increases in productive capacity, questions
have been raised concerning the short-term adjustment to
higher oil prices. Indeed, the desire in some quarters to
see rapid utilization by OPEC of its oil revenues has
stemmed at least in part from a fear that high oil prices
would create major recycling problems. Specifically, this
would have resulted from 1) the inability of Western financial institutions to perform their intermediation function
because of the sudden surge of liquid funds from the OPEC
countries and/or 2) an insufficient flow of such funds to
Europe — the major oil importing area of the world — on
reasonable terms, thus forcing severe domestic policy
adjustments.
These fears have proved unfounded on the basis of
experience to date, and indeed there should have been no
presumption that the necessary recycling efforts would be
more difficult to accomplish than a sharp sudden expansion

J?7JL
- 43 of exports of a magnitude necessary to cover the potential
deficit, nor that financial intermediaries should prove to
be the weakest link in the chain of transfers of claims.
There was in fact no alternative to recycling in the very
short term given the abrupt and massive shifts brought about
by the increase in the price of oil. To be sure the adjustments to higher oil prices have been imperfect, but it is
highly improbable that export expansion to OPEC countries
would more perfectly match the pattern of increased expenditures for imported petroleum in the short-term.
During the past year the OPEC countries have demonstrated portfolio management objectives similar to most
other investors. In particular, they have recognized the
desirability of risk spreading both among geographical areas
and types of investment assets. Moreover, the intermediary
function performed by financial institutions in the postwar
period, through a well established institutional framework
and open capital markets, has traditionally assured a high
degree of mobility of capital and last year was no exception.
As a general proposition financial adjustments have continued
to be executed by the market's rearrangement of interest
rates, reconciling differing preferences for financial
instruments as well as adapting the capital structure of
financial institutions to new needs of the market. The
creation of the OECD Solidarity Fund together with other
existing arrangements will, of course, serve as supplements
to the private market mechanism as each country attempts to
adjust financially to higher oil prices.
Transfers During Cyclically Slack Periods
It has also been suggested that increases in exports to
the OPEC countries would clearly complement domestic policy
in periods of economic slow-down, but the practical case for
encouraging transfers of real resources during such cyclically
slack periods is weak.
In the first place, the absorptive capacity of OPEC
countries is the main determinant of the rate of the export
response to any policy shifts in the consuming countries,
and because of the uncertain knowledge of this structure,
attempts to manipulate OPEC demand would probably be unsuccessful.
Second, it should not be forgotten that in many cases
increasing slackness may reflect an attempt to bring inflation
under control, so that this goal could be compromised were
export demand to increase. But there are also problems even
where this is not the case and where an expansion of foreign

^

- 44 -

demand would complement domestic economic policies. As a
general matter, the tempo of expansion of both foreign
demand and domestic supply is extremely uncertain. Increased utilization of capacity, spurred by export orders,
can be accomplished only after a lag. Above and beyond this
is the fundamental question of whether export led growth is
essential to economic recovery or whether domestic policy
instruments are adequate to insure recovery without the
need to transfer real resources abroad.
There are other major problems as well. At some point,
an expansion of domestic and foreign demand can quickly
outstrip improved supply conditions and the pressures to
curtail dynamic export markets would begin to mount. A
policy of turning on and turning off exports to OPEC through
the course of cyclical swings is not a viable long-term
proposition. Yet, if not curtailed these exports put added
pressures on domestic economies in times of total excess
demand. Moreover, the effects within an economy of a cyclical
slowdown are uneven. OPEC nations cannot be expected,
however, to confine their purchases to the most depressed
sectors in a cyclically slack period. Indeed their demand
for imports from these sectors may be minimal or nil.
If transfers are delayed, the resulting infusions of
OPEC financial capital might alleviate some of the financial
stringencies that firms suffer during contractionary periods.
But the firms in greatest need are generally those with the
weakest capital structure, or those who find the cost of
borrowing high relative to the return on their enterprise.
It is doubtful that investments in failing firms would prove
to be a very attractive proposition to OPEC countries. It
is also doubtful that substantial OPEC funds would be
invested at lower than market rates of return. There is the
general question, moreover, of whether marginal operations
can be sustained through special and, perhaps, one-time
arrangements with OPEC countries.
Absorption and Oil Price Policy
There is also likely to be a significant relationship
between the absorption rate of OPEC countries and their
policies with respect to oil production and oil prices.
In the case of countries with relatively low levels of
oil reserves and revenues, successful implementation of
domestic development plans and substantial utilization of
oil revenues for domestic purposes are likely to result in a

- 45 decision either to seek higher oil prices or to increase oil
production. The choice will be influenced by 1) the ease
with which either course of action can be taken, 2) assessments
of the supply and demand elasticities for oil over the short
and longer terms, and 3) the relative importance attached to
protecting long-term interests by accepting short-term
discomfort.
The experience to date has suggested that when faced
with revenue constraints, individual OPEC countries are more
likely to opt for efforts to maintain production. It is
not clear, however, that this process can or will continue,
particularly if such action would represent a clear break of
OPEC solidarity. But it is also not clear to what extent
those countries whose revenues substantially exceed domestic
needs are prepared to reduce further their own level of
production to sustain oil price levels for the benefit of
the other OPEC countries.
In the case of countries with relatively high levels of
oil reserves and revenues, their continued inabilty to
utilize a substantial proportion of oil receipts for domestic
development purposes, and the consequent recycling of substantial levels of funds for the use of the consuming
countries, might also prompt them to reassess their policy.
The options open in this situation are the reverse of the
revenue constraint case. Oil production that results mainly
in the build up of assets abroad may suggest to individual
OPEC countries that either production should be reduced or
that some price relief should be extended for the sake of
the interests of the rest of the world. Experience to date,
however, indicates that the latter trade-off has unfortunately not dominated the thinking of these few producers.
The present situation, of course, contains elements of
both of the cases described above. Compatibility has been
found in a combination of price and production cutbacks.
The question, of course, is whether this pattern can or will
be perpetuated if the disparities between revenues and need
continue and/or accentuate, or whether different OPEC policy
responses will evolve. The outcome will naturally depend
upon a number of factors including the ability of the OPEC
countries to use their oil revenues for domestic development.
Constraints on Policy Actions By Consumer Countries
Should consumer countries decide to emphasize either
exports to OPEC countries or OPEC investment in the industrial world, the question becomes whether the consumers
can influence this course of events, and, if so, how. There
are obvious problems and pitfalls.

Many governments in one degree or another must operate
in an environment of both significant private sector control
of, and interest in commercial exchanges. Governments in
their efforts to spur exports or investment inflows must
recognize the limitations imposed by both of these facts.
It is difficult to restrain or prevent firms' efforts to
maximize commercial exchanges that will directly benefit
their shareholders and communities. Conversely, it is difficult to persuade firms to commit themselves to unprofitable
operations.
Policy decisions which would attempt to channel oil
revenues in a particular direction risk preferential or
exceptional approaches and a departure from basic policies.
Development of OPEC industrial capacity will almost certainly
enhance desires for preferential access to consumer country
markets. We have already witnessed some pressure in this
direction. Growing OPEC investment abroad, on the other
hand, could lead to pressures to limit such investments in
additional sectors and/or conversely may require special
inducements. All of this would further distort the world's
economic structure.
Another factor which the consumer countries must guard
against is a possible tendency toward a competitive race
among them for OPEC markets or investment capital. While
such promotional efforts would not necessarily render longterm balance of payments adjustment within the consumer bloc
more difficult if exchange rates remain flexible, the end
result could be an even greater transfer of real resources
to OPEC countries, since increased costs from exchange rate
adjustments might not offset the savings to OPEC from subsidies, etc. Moreover, economies heavily reliant on specific
foreign markets are no less vulnerable to them than are the
countries heavily reliant on specific sources of oil.
Conclusion
There are, of course, factors other than those discussed above which bear on the real resource transfer
problem, but most of the main economic considerations have
been covered. These would suggest in varying degrees of
force that a policy of permitting both merchandise and
capital flows to be determined primarily by economic forces
would be the most prudent course for the consumer countries.
The emphasis individual OPEC members will place on domestic
versus foreign investment will shift over time according to
their investment plans. The diversity of such plans among

- 47 -

J9C

the OPEC countries, and the highly uncertain manner in which
they will be carried out, suggest that the most flexible
economic institutions, to wit free markets, are best adapted
to the orderly transfer of real and financial resources. A
plethora of nonmarket arrangements in such a fluid situation
is almost certain to hamper effective adjustments among the
industrial countries.
Beyond this, emphasis on economic efficiency will help
ensure producer country investment in areas where their
comparative advantage will be the greatest. The same
criterion would ensure a substantial flow of investment
capital to the West, both directly and indirectly. World
income would of course be maximized, and the burden which
oil price increases have imposed on the consuming countries
would probably be eased. Flexible policy instruments will
also enable consuming countries to take maximum advantage of
the return flow of OPEC capital.

Annex

39?

Trends in the OPEC Current Account Position
Developments in 1974
The most recent available data indicate that the OPEC
current account surplus in 1974 reached $59 billion, excluding
government grants (when oil receipts are recorded on a
payments basis). This is somewhat lower than a number of
initial forecasts made last year which anticipated surpluses
in the range of $65-70 billion. The initial forecasts did
not fully anticipate the extent to which OPEC import demand
would respond to the high level of oil earnings. It became
apparent, however, over the course of 1974 and early 1975,
that estimates of growth of imports were too low, and many
projections were revised accordingly.
Comprehensive, accurate import data remain unavailable.
The statistical reporting systems of some countries do not
pick up all imports and the true current account position of
the OPEC countries may never be known. Presently available
data including export data for the major industrial countries
suggest that the increase in OPEC imports last year was
approximately 80%. Price increases on average accounted
for somewhere around 25% of this increase.
OPEC's non-oil exports also rose sharply, by nearly 40%
above the level of 1973. The major factor was the boom in
commodity prices, although for Indonesia which accounts for
40% of all OPEC non-oil exports, volume increases were also
large.
We would estimate that the deficit on services rose
somewhat last year to $4.8 billion. Investment income
increased sharply as a consequence of the build up of assets
abroad, but this was more than offset by freight and insurance payments associated with the dramatic jump in OPEC
imports, as well as an increase in workers remittances,
particularly, in the Persian Gulf countries.
The balance of payments data for 1974 show striking
contrasts between the OPEC members. Three countries, Saudi
Arabia, Iran and Kuwait, account for almost two-thirds of
the OPEC surplus. Of the remaining eight members only
Nigeria, Venezuela and the UAE had significant surpluses.
The dissimilar financial accumulations were primarily the
result of different levels of oil production. Although
imports increased markedly in all OPEC countries, there were

- 2significant differences among them. At the extreme the
imports of Iraq and Iran increased nearly 200% and 125%
respectively, while the imports of Libya and Nigeria rose
less than 40% in nominal terms.
Outlook for 1975
The OPEC current account surplus for 1975 should be
down sharply from last year. This should result from
further large increases in imports, but much smaller increases in oil revenues due to cyclically depressed demand
in the industrialized countries during the first half of
1975, stock drawdowns, a mild winter and some demand response
to the oil price increases. Although the value of imports
should increase by about half last year's rate, a sharp
decline in import price increases to about 12% will mean
that the reduction in real terms will not be as great.
We would also expect to see little change in the
services deficit this year. Investment income will continue to mount, but so will freignt and insurance payments.
Workers remittances, travel expenditures and payments on
government debt will continue to be substantial and together
will be nearly as large as either investment income or
freight and insurance payments. A light reduction of about
$300 million in the services deficit is projected.
The distribution of the surplus among the OPEC
countries is likely to become even more.skewed during 1975.
We would expect the share of Saudi Arabia, Iran and Kuwait
in the total surplus to grow at about 80%. Algeria should
emerge as the first OPEC country to run a sizeable deficit,
as it finances its expanded import program through international borrowing. Surpluses should disappear for Ecuador
and Indonesia, and the current account of Iran and Libya
are likely to approach near equilibrium positions.

OPEC Investible Surplus

1973
($ million)

Algeria
Ecuador

Oil Exports
(Gov't Take)
1000

Non-Oil
Exports
360

Imports
F.O.B.
-2060

Services
and Private
Transfers
-170

Invest
Surplu
-870

100

310

-460

10

-40

Indonesia

1200

1610

-2410

-750

-350

Iran

4500

590

-3600

-400

1090

Iraq

1700

110

-1160

-180

470

Kuwait

1900

230

- 920

310

1520

Libya

2300

-

-2200

-700

-600

Nigeria

2400

620

-1780

-980

260

400

10

-180

- 90

140

Saudi Arabia

5500

20

-1800

-600

3120

United Arab Emirates

1200

40

- 860

- 90

290

Venezuela

3000

375

-2820

-690

-135

25,200

4275

-20,250

-4330

4895

Qatar

Totals

August 29, 1975

\

OPEC Investible Surplus
1974
($ million)
Services
and Private
Transfers

Investible
Surplus

Oil Exports
(Gov't Take)

Non-Oil
Exports

Imports
F.O.B.

355

-3710

60

405

Algeria

3700

450

- 790

110

500

-50

Ecuador

2200

-3890

-1480

230

3400

-8000

-820

Iran

800

10,680

18,700

-3460

-420

Iraq

150

1970

5700

425

7335

8000

-1480

Kuwait

390

6200

40

-3000

-700

2540

Libya

-2490

-740

Nigeria

850

5220

7600

- 270

- 50

Qatar

10

1290

1600

25

-3530

-295

20,800

24,600

-1600

- 60

United Arab Emirates

20

4360

6000

-4660

-620

Venezuela

_375_

3995

8900
94,900

5665

-36,880

-4750

58,935

Indonesia

Saudi Arabia

OPEC Total

i

I

August 29, 1975

^T

f f

OPEC Investible Surplus

1975
($ million)

Oil Exports
(Gov't Take)

Non-Oil
Exports

Imports
F.O.B.

Services
and Private
Transfers

Algeria

3630

350

-5670

-300

Ecuador

375

550

-930

-90

-95

3675

2380

-4680

-166C

-285

Iran

19,875

1000

-10600

-660

9615

Iraq

7580

200

-6600

-670

510

Kuwait

7890

530

-2100

805

7125

Libya

5150

100

-4100

-500

650

Nigeria

6715

900

-5100

-610

1905

Qatar

1755

10

-380

-70

1315

26,685

30

-5660

-100

United Arab Emirates

6475

10

-2200

-70

4215

Venezuela

8320

510

-6510

-550

1770

98,125

6,570

-54,530

-4.475

Indonesia

Saudi Arabia

OPEC Total

Investible
Surplus
-1990

20,055

45,690

August 29, 1975

Ul

JS~
UNIT13L STATES DEPARTMENT CF THE TREASURY
Washington, DX,

PRESS CONFERENCE

Hald by:
EDWIN H. YEO
Under Secretary
for
Monetary Affairs
2s30 p.m.
Friday, September 5, 1975
Meeting Room 4
Sheraton Park Hotel
U&£'hincn;oyi, D.C.
STAFF PRESENT
LISLE WXDMAN
CHARLES A. COOPER
SAM CROSS
JOHN BUSHNSLL
INTRODUCED BY;
JOHN P. PLUM
The .above-entitled press conference was
convened,, pursuant to notice, at 2s30 p.m..

JS3
MR. PLUM:

This is Mr. Yeo.

UNDER SECRETARY YSOs

Good afternoon.

everyone have their headphones on?
clothes without the headphones —

Does

I feel almost without
I became quite used to

them after a week of very hard work.

In my opening

comments, X have a few personal reactions,
One, I think it was a week of accomplishmentr
a week in which things were done, not for the sake of
simply doing, but good agreements were reached which involved
soxfle give on a variety of fronts by a variety of parties.
It produced agreements that were for the overall good, and
also underlined the fact that these fora not only involve
useful discussions, but also present the framework in which
decisions can and are made*
X have been impressed personally by the high
degree of cooperation, the forthcoming spirit which
characterized our conversations, and the close personal
relations of the participants, and the way in which those
relationships contributed to the resolution of several
important and difficult issues.
Those of you who attended our pre-meeting press
conference, I am sure were gratified that the Interim
Coramittee did involve itself with economic discussions.
Economic discussions were very much on the agenda, and I
can tsll you that they were meaningful discussions.

As a personal proposal, I think that the Interim

Coasaittee8 s activities in the future might well concentrate
in part on serving as a vehicle, a framework for continuing
economic discussions. If you look at the history of the
Interim Committee, examine it, this is really what it was
developed to do. It does not represent a cop out in terms
of hard issues, because as you saw, hard issues were discussed parallel with economic issues. And I am not even
sure that it is fair to say that economic issues are not
hard issues, hard in terms of meaning, and hard in terms
of resolving various points of view.
The Interim Committee, in terms of the troika
of issues before it, has one issue leftf the exchange
rate issue, which we are very hopeful will be able to be
resolved? that the Committee will be able to resolve at its
January meeting.
Beyond that, X would suggest that its original
mandate to serve as a vehicle for the exchange of economic
viewpoints be acted upon and be taken up. And that is one
of the ways, one of the directions in which the Interim
Committee could evolve.
That is all I have in the xtfay of an opening
statement. I will be happy to try to answer your questions.
QUESTION? Mr. Secretary, there has been sor.te

concern expressed about the wild volatility of exchange rates

2&
especially between the dollar and the German mark. The
economists can say it has little economic meaning. Do
you anticipate that the U.S. government will attempt to
moderate these fluctuations in the future?
UNDER SECRETARY YEOs

The exchange rate mechanism

not only reflects economic developments on the real side,
but it also reflects economic developments on the financial
side. I think that that is a very important distinction.
It is quite true that broad measures of economic
developments do not seem to have* the same variability as
rates, even though in recent months, the degree of variability
in rates has been reduced substantially, reflecting a
growing equilibrium in the real sector.
After ten years of inflation, we have one of
the financial legacies of such a period, which is an
accumulation of short-term assets, and short-term claims.
Inflation is financed in the short end simply because
potential holders of assets have a reduced appetite for
holding long-term assets.
As the result of financing inflation in terms of
short-term finance and the short-term areas of the markets,
we have accumulated a substantial quantity of short-term
funds, assets., claims that move very quickly. This is one
of the factors in addition to underlying disequilibrium
on the real side, that has been responsible for the

variability in rates that has occurred over the last several
years.
It is also one of the factors that increases
our own respect for the elasticity and flexibility of a
voluntary system under which those that wish to peg, may
peg; and those that wish to float, may float.
Those capital movements, capital movements being
one of the euphemisms, shifts of flows of funds, are very
large and very powerful, and are best absorbed within the
elasticity of a flexible system, a voluntary system where
we are able to float and others are also able to float.
QUESTION: Mr. Yeo, from what you have just said,

could one, in fact, conclude that you rejected the suggestio
by Mr. Alfred Hayes in his lecture earlier this week?
Mr. Zijlstra, and also the IMF has said, as well as I think
the Germans and several others, that there is a need for
greater management of floating rates?
U&DER SECRETARY YEOs Our own view is that we
feel that intervention is necessary only under conditions
in which markets have become disorderly. As a fellow who
came out of the market, I can tell you, you will have as
many definitions of disorderly as you have for disciplines.
Our definition is a limited definition, and it means a
situation in which markets are not functioning well, rather
tha.n the particular rate movement associated with markets

6

at any given time.
The way to reduce rate volatility in our view

is to move respective policies in the direction of stabiliza
tion of domestic economies. And through that mechanism,

through that effort, we have the greatest promise of stabili
The reciprocal of that is a great respect on our
part for the variability of economic developments during a
period such as we are in, and the size and power of flows
of funds that have accumulated over ten years of financing
inflation. So that I would not want to be in a position of
rejecting? X rather would reaffirm our own view as to the
desirability of intervention.
QUESTIONS You belong to the Interim Committee, and
you indicated the Interim Committee might be on a permanent
basis, be a place where other economic issues could be
discussed. Would you think that the Interim Committee could
discuss the interest harmonization between Europe and the
United States, or such other items?
UNDER SECRETARY YEOs I would not want to be in
a position, having made a recommendation that we would have

general economic discussions, to set forth a proposed agenda
I think that there is a difference between consultations
and the type of activity that you describe. So that I can

be very clear, 1 am proposing consultations and discussions.
QUESTIONS From developing countries, when does

the United States propose to reach the figure they wanted
to reach by 19BO? The developed world is supposed to

transfer one percent of its GNP to the developing countries
When does the United States propose to reach the target?
UNDER SECRETARY YEOs T&e formula to which you
are referring was a formula agreed to by some countries,
one percent of the GNP of the United States. The United

States has not agreed to that formula or any other formula.
We look at each program on a program-by-program basis.
QUESTION: Considering the divergence between
views Mr. Simon has outlined and the French have outlined

on rates, it is difficult to see what the basis is for hope
that agreement to compromise could be reached in January,
Can you tell me why you are hopeful that this could be
worked out by January?
UNDER SECRETARY YEOs I can't tell you precisely
why I am hopeful, but X can point out that many people
had the same general view regarding gold and quotas ten
days ago. X would not underestimate the sense of changethe harmonization of attitudes if not ideas, that has
characterised the last ten days.
We do not go into this position, into this period

that is coming up, the remainder of this year, in a dogmati
or for that matter, doctrinaire frame of mind. We have our
ideas, we have expressed our ideas, which we are really

3

obligated to do and want to do, and there have be&n expressions of other ideas, differing points of view on the same
subject. If ?;e all agreed, there would be no negotiations. But that is really the premise on which I expressed
my hope for results by January.
QUESTION? Do you think that the proposal outlined
by Dr. Witteveen for suspending the present articles and

running the exchange rate system under a schedule is a basi
for confidence?
UNDER SECRETARY YEO: We think that it is certainly
an idea that ought to be considered. There are other
possibilities, and it is certainly one avenue that will be
explored.
QUESTION: Will the central banks purchase gold
when the Treasury and IMF sell gold?
UNDER SECRETARY YEO: The articles of the IMF
are still in force on the subject until amended. That is
our view.
X might say something about the agreements or.
gold. These are overall agreements. There is some very
intense and very necessary staff work that is ahead which
is necessary to get these agreements implemented. And I am
not going to attempt to pre-empt that staff work or pose
as a legal expert on some aspects of the implementation of
these agreements.

9

QUESTION: I have th^ impression — correct vie if

X am wrong — that France and South Africa are both deligh

with the result of the interim agreement on gold. X understand, from what Mr. Simon has said, that similarly, the
United States is delighted with the agreement. Now, when

both parties are in agreement, does that mean that gold in

effect will be fephased back into the monetary system, or
gold will be phased out of the International Monetary
System?
UNDER SECRETARY YEOs That mutual satisfaction

that you speak of is the stuff of which agreements are mad
We have the view that with the abolition of an official

price of gold, elimination of IMF authority to accept gold

with the prospective sale of one-sixth of the IMF gold, an

with the agreement by G-10 that there will be no action t

fix the price of gold, and with the G-10 gold cap, that it

is unlikely that gold is going to move back into the cent
of the monetary system, and that we are pursuing or proceeding along a path that we have described to you and
many others many times.
X might say in addition, that in a period such

as we have been operating in with wide price expectations,
it is most unlikely — this is just an observation — most

unlikely that an official settlement would occur in gold.
QUESTION: Would that be on a de jure basis

10

or on a de facto basis? When you list these various
ingredients, would you say well, phase gold out of the

international monetary system? For example, a country such
as Uruguay, where their central bank can borrow on gold,
it in effect makes gold an official reserve and makes it
as de facto transactions are concerned.
UNDER SECRETARY YEO: I don't think that that

really has a central relationship to the question of wheth
gold is moving bade to center stage or out on the wings.

It is our view that for the reasons, not just our opinion,
but for the reasons that X mentioned, that gold is moving
the wings. And complementing that X think our fundamental
economic development is reinforcing that tendency.
QUESTION: Would you spell out again what is the
final position of the United States as far as the sale of
the 25 million ounces of gold is concerned? Can it go on
before January or can it not? And if so, if not, when
do you expect the sales may begin?
UNDER SECRETARY YEO: Sam Cross, do you want to
answer that?
MR. CROSS: The question is, when the varicos

parts of the gold sale could begin. There are some differi

views OJI this. I believe it was stated, it has been state
that the Fund does have certain legal authority due to
certain legal provisions to begin disposing of its gold

11

under the present articles without amendment, and that step
could be taken if there were an agreement to do so to move
the gold at any time, or to begin to move the gold at any
time, to dispose of it for the purpose of beginning to

accumulate some funds, for the purpose of helping the LDC's
MR. PLUM: We will take two more questions.
Yes, Sir.
QUESTION: Mr. Yoe, can you confirm that the

Interim Committee has informally agreed to leave all furthe

discussion on floating exchange rates to the USA and France

leaving all others out, and that the oil exporting countrie
have expressed sympathy with the French view on floating
exchange rates?
UNDER SECRETARY YOE: I can confirm that there
is no such agreement, that the full Interim Committee will
deal with the exchange rate issue. That is not to preclude
discussions among a variety of participants, but the

exchange rate issue will be decided by the Interim Committe
and in the Interim Committee.
I am sorry, I did not get the second part of
your question.
QUESTION: About the support. Have you heard
of support from the OPEC countries for the French position
on floating exchange rates?
UNDER SECRETARY YEO: We have heard a variety

12

of countries express their views over the last week. Our
general impression, just as an observation, is that many
countries have found the present voluntary system a con-

genial one. The exchange rate system that we i*ould propo
we call a voluntary system, and those countries that wish
to peg can move to a fixed exchange system. They are cer-

tainly under our proposal free to do so. On the other hand

those countries that wish to continue to float are free to
do so.
MR. PLUM: Any more questions? Yes.
QUESTION: I have a question about the sale of
gold. Is there a cutoff date for the sale of gold to end?

In other words, how long would it take to sell the one-six
amount of gold, and when do you achieve that $3 billion
that you hope to get out of the sale of gold?
UNDER SECRETARY YEO: There is no cutoff dateX cannot speculate on the length of time that will be
involved.
MR. PLUM: Shall we take one more question?
QUESTION: X believe that Mr. Yeo himself seated
about a week ago, and that Mr. Simon reiterated ~ I'm
sorry. Mr. Yeo stated first about a week ago that the
United States position on the bundling of the gold issue
and the exchange rates issue was not something that the
United States will be pushing. But Secretary Simon, after

9?
the unbundling, at least in theory, did go through, and it
was a bit of a humiliation for the United States, that the
United States was able to push on the bundling because there
was a mandate from Congress to do so. I am not aware of
any such mandate, and people we have questioned on the Hill
are not aware of that. I was wondering if you can clarify
this.
UNDER SECRETARY YEO: I am sorry. Perhaps you
could restate that. I don't remember my saying that, I
think that what X said at my last press conference was
that we could have unbundling in the sense of reaching
agreement on issues taken away from the three and dealt
with separately.

Indeed, that is what has happened.

":"" I think I also said that any agreement on one
or two of these three issues would have to be presented
to Congress along with agreement, ultimate agreement on
any issue not unbundled so that we would present Congress
with an agreement on all three issues, reaching agreement
in stages.
MR. PLUM: Thank you very much.
{Whereupon, at 3:05 p.m., the press conference
was concluded.)

Jne

tSvcUfamal oD^cadaz^na

MEET

loctn/iaAvu, csweAeivfo

THE

REASURY

2*7

PRESS

&eduA**tty LAWRENCE E. SPIVAK

>tei»ber 10, 1975
3U* WILLIAM E. SIMON
The Secretary of the Treasury

£ing
Lvania Aveaue, H.W.
c

VOLUME 19

SUNDAY, SEPTEMBER 7, 1975

NUMBER 36

JfevMe &&eto Jnc. printer* and PJeviodica/' 0ul/ii/wri.
tfu.iucUa.iijj. o£ c7if.vco focr/toyalion
3fox2JH, "jfcJunptbn. @. <€. X00J3

•5 cents per copy

rence was Gcnvar.^d,

0Le/: L E O N A R D SILK, The New York Times
H A R R Y B. ELLIS, The Christian Science Monitor
L E E M. COHN, The Washington Star
IRVING R. LEVINE, NBC News

JU>«do*: L A W R E N C E E. SPIVAK

Permission is hereby granted to news media and
magazines to reproduce in whole or in part. Credit
to NBC's MEET THE PRESS will be appreciated.

#7

MEET

THE

PRESS

MR. S P I V A K : Our guest today on M E E T T H E P R E S S is the
Secretary of the Treasury, William E. Simon.
Before taking his present post in May, 1974, he served as the
first administrator of the federal energy agency. H e came to
Washington in 1972 from a career in investment banking in
New York City.
W e will have thefirstquestions n o w from Irving R. Levine of
N B C News.
MR. LEVINE: Mr. Secretary, you and other members of the
administration have repeatedly warned of the dangers of inflation to our economy. Yet the most recent monthly Consumer
Price Index shows the inflation rate going up at an annual rate
of over 14 percent a year, and the Wholesale Price Index which
came out just two days ago shows wholesale prices going up at
an annual rate of just under ten percent. W h a t do you see as
the outlook now for inflation?
SECRETARY SIMON: I don't think that the outlook, Mr.
Levine, has really changed at all. W e know w e have a serious
inflation problem—a base rate of inflation as w e pull out of this
recession of somewhere in the area of 7 percent.
I caution though that w e not take one or two months' statistics as an indication of permanency. W e have m a d e significant
inroads in our battle against inflation, in the war, if you will,
against inflation. The G N P deflator is down in the second quarter of this year to five percent versus almost 15 percent in the
fourth quarter of last year. The Wholesale Price Index is down
from over 30 percent in the third quarter of last year to five
percent in the second quarter, the Consumer Price Index, cut in
half. That doesn't m e a n w e have w o n the war. W e have w o n a
battle, but w e have to continue our vigilance in this, our true
long-term enemy.
MR. LEVINE: A good many business leaders and economists
take a more alarming view about this new burst of inflation and

1

express the fear that it m a y interrupt the rather feeble business
recovery w e are n o w experiencing. W h a t is your reaction to that
view?
S E C R E T A R Y S I M O N : I think that the figures have been
obviously disappointing, but again I do not take those as a longterm trend. It was due to food and food processing and the
passing-through of increased energy costs. These are on the
special factors side and will pass through the economy. But
this doesn't mitigate the fact, as I said a minute ago, that we
have a serious long-term inflationary problem that is going to
take several years to cure.
MR. LEVINE: Do these recent figures lead you to believe
that some additional steps should be taken by the administration, and, if so, what should they be?
SECRETARY SIMON: I don't think that additional steps
must be taken. W e have the policies in place, the fiscal and
monetary policies that w e are attempting to bring into balance,
that over the long run are going to solve this problem.
The important thing is that this problem didn't come about
overnight. It came as a result of irresponsible and excessive
fiscal and monetary policies over the last decade, and w e are not
going to cure the sins of this past decade by a day of penance.
(Announcements)
MR. SILK: The administration has said that it can't help New
York City out of itsfiscalcrisis unless city officials produce a
credible program for solving the N e w York City problem, but
then you say: If N e w York City does produce such a plan, the
federal government will have nothing that it needs to do. Isn't
this Catch 22? Isn't there anything the federal government can
do to help N e w York City to avoid default and to solve its longerrange problems?
SECRETARY SIMON: Let's put this whole issue in the proper
perspective and talk about m y responsibility as Secretary of the
Treasury, which I perceive to be the maintenance and protection
of thefiscaland financial integrity of the United States and its
dollar, which has been seriously eroding and deteriorating in
recent years. W e have an inflation problem that I have just alluded to. W e have had politicians that for years w e have been
electing on the credo of spend, spend, just more and more, promising more than they can deliver, and the end result is inflation.
W e have finite resources, w e have finite savings to finance our
future in the United States, and w h e n you imply that the federal
government should, as has been implied, guarantee the state and
local debt, this brings up serious financial questions and serious

2

^9
financial consequences, not to mention the inflationary consequences. Lets look at what it does: It creates a n e w series of
iebt because equity demands that if w e do it for N e w York City,
we have to m a k e it available to all other states and local governments, in excess of $20 billion of borrowing each year. It creates a n e w security that would literally be better than the federal
government's o w n security because it would be tax-exempt and
government-guaranteed, thereby further pre-empting credit in
our private capital markets that w e have already crowded-out
substantially in the past ten years to finance $150 billion of
budget deficits and then the off-budget gimmick that was created by the politicians to avoid the budgetary process—a third
of a trillion dollars, $300 billion, w e have financed for both these
type programs, taking m o n e y from the productive sector that
provides 85 percent of the jobs in the United States, money that
could have gone for housing and the creation of n e w jobs.
That is what w e have been doing. But, most importantly,
what does it do? It puts the federal government directly involved
in thefiscaland financial affairs of state and local governments
in the United States, and this in m y judgment contravenes the
constitutional principle of federalism. I would think T h o m a s
Jefferson and others would be twirling in their graves, because
if we have to involve ourselves in the financial affairs and give
guarantees, then w e have to protect the federal interest, and, as
a result, w e would have to say, "Well, w e will tell you w h e n to
borrow, h o w m u c h you can borrow and what your priorities are."
That is not what this country is all about.
Imagine an angel of mercy in the guise of a GS-16, a federal
official, would come down and say, " W e need this in the federal
government."
I believe in states rights, and I think this would be an intolerable precedent.
MR. SILK: Not all city problems are peculiar to the city. Take
welfare, for example, with people coming in from all over. Isn't
there need, even if N e w York City did all the budget-cutting
anybody could imagine and if, as a result, the city deteriorated
and income continued to decline—that there would need to be
federal programs, including picking up a part of the welfare
burden?
SECRETARY SIMON: I think the whole subject of the welfare debate—and I most certainly have been a critic on the issue
of welfare as far as the federal government is concerned for a
long time—I have long favored an income-maintenance program
recognizing that the United States government has the responsibility to take care of those unfortunate people w h o cannot take
care of themselves, and yes, that debate is going to start. Presi3 Chairman
dent Ford has directed Vice President Rockefeller as

of the Domestic Council to commence an overall study with the
eye to recommendations on the welfare system, but this is a
longer-run, necessarily, answer to the question.
In the short-run, [if] N e w York City presents a credible
budget and crediblefiscalpolicies, they will be allowed to reenter the capital markets again.
MR. COHN: Getting back to the national economy, even if the
administration's forecasts turn out to be accurate—and there is
some doubt about that—at the time of next year's election
campaign, unemployment will be higher, inflation will be worse
than almost any time since World W a r II. H o w can the Republican administration and the Republican Congress expect to be reelected under those circumstances?
SECRETARY SIMON: I think the most important thing is the
direction that the economy is moving in, because no one has the
ability to forecast the future exactly—with the exact numbers
of unemployment and what real growth is. The fact is, our forecasts have erred on the side of conservatism [in] that the economic recovery commenced earlier than w e expected, and now
w e perceive its quality and indeed the size of the real GNP
growth to be greater than anticipated.
MR. COHN: Where do you expect unemployment and inflation
to be, approximately, when the voters are going to the polls
next year?
SECRETARY SIMON: Again, it is impossible for me to forecast exact numbers, but w e will continue to m a k e progress on
both fronts and will continue to have positive real growth moving into 1976 and a declining unemployment rate, and it is
going to decline a lot faster than the budget projections which
Arthur Burns and I have said on m a n y occasions—we do not
perceive this pessimism to be accurate.
MR. ELLIS: Further on unemployment, in the last five months
about 1.5 million more Americans are at work than previously,
but still the jobless rate is stuck at 8.4 percent. M y question
is, how m a n y jobs year by year must our economy create to
bring down the unemployment rate and to take care of newcomers to the labor force?
SECRETARY SIMON: First of all, we have to bring the econo m y back to full employment, which is slightly in excess of
three million jobs from this level. Then, between now and 1980,
w e have to provide for two million n e w jobs each year, new
jobs, new entrants to the labor force, and a million and a half
jobs, new jobs, after that.

4

M R . E L L I S : M y question then would go further: Would that
creation of new jobs, even if it proves possible, help the teenagers and the blacks whose unemployment rates are disproportionately high? H o w do you help these people in our economy?
SECRETARY SIMON: This is a question that is extremely
difficult, and w e continue to work on the social problems that are
attendant with the minorities and the teenagers and the structural problems that w e have got in our employment force. Certain parts of it can be done in a legal sense, and w e do that to
every extent that w e can. W e have to continue to provide the
equal opportunity that has always been present in this great
country of ours.
MR. SPIVAK: According to The New York Times, you said
the Ford administration was unlikely to act in the N e w York
Cityfinancialcrisis, but that it might step in afterwards to
soften the impact. W h a t sense does that make?
SECRETARY SIMON: I think that we have a responsibility
in the federal government to take care of any hardship that
might occur if N e w York City defaulted, and I say "if" very
strongly because a N e w York City default can be avoided and it
should be avoided. It can be avoided by taking the tough steps
that have to be taken.
As far as what effects there might be, you look at the bankruptcy law, which is certainly inadequate to m a k e sure that
there will be an orderly transition, if there was a default. W e
have to m a k e sure that federal assistance payments for our
many programs continue to flow through the city. And, of
course, most importantly, the Treasury Department is working
with the banking agencies to assure the continuing functioning
of our banking system, which w e will.
MR. SPIVAK: You think that New York City can still, within
this next week, which I think is about all it has, avoid default?
SECRETARY SIMON: The Governor and all the legislators in
1
Albany are presently working on a program that can avoid this,
and I hope they act with deliberate haste.
MR. LEVINE: You have spoken of the vigor of the recovery
I which has taken place, and at a news conference last week you
indicated that the recovery from the recession m a y be vigorous
enough to eliminate the need for a continuation of this year's
i tax cut next year. But in an election year is it inevitable that
the tax cut will be continued?
SECRETARY SIMON: That premise has been presented to me
by several members of Congress, and m y reply to that has been
that I would hope for once w e begin to m a k e good economic

5

judgments on matters and not political ones, that good economics
are good politics, not the reverse.
M R . L E V I N E : A n d you would consider it good economics not
to have a tax cut next year, but in fact what would amount to a
tax increase?
S E C R E T A R Y S I M O N : The point is that it is too early to make
that assessment, as w e have continued to say. T h e tax cut.discussions are going to be held over the next 30 to 60 days, when
m u c h more evidence of the economic recovery and the extent
of same will be in, and at that point if the recovery is disappointing in any way, as I said, I wouldn't hesitate to urge the President to recommend to the Congress for another increase.
MR. LEVINE: But, Mr. Secretary, the administration and
you have been saying now for three or four months that there
is no rush, but the legislative timetable is such that you will
have to m a k e up your mind within the next few weeks on this.
Certainly you must be leaning one w a y or another.
Is it fair to assume from your recent remarks that you are
leaning against the continuation of the tax cut next year?
SECRETARY SIMON: No, I would not wish to prejudge what
I would recommend to the President because, as I say, the economic statistics that w e will have 30 to 60 days from now are
going to be extremely important. Also, the action on the oil price
increase is going to be an important consideration.
MR. SILK: According to our paper, you are reported to be in
agreement with Alan Greenspan, w h o has written a m e m o warning that Vice President Rockefeller's $100 billion plan to create
an agency for making energy loans would create a large potential for real and perceived corrupt practices—those are the words
used in the m e m o — p l u s waste, plus a great deal of competition
with the private sector. Is that in fact your position, or do you
support the Rockefeller $100 billion energy plan?
SECRETARY SIMON: Let me tell you exactly where I stand.
I favor United States government involvement in certain areas
of the energy problem, areas that the private sector cannot develop because certain of the more sophisticated future synthetic
energy sources are non-economic, and therefore money will not
flow to them, such as massive oil-shale,fission,fusion, and other
sophisticated forms. The debate centers, not on favor, unfavor,
but the extent of the corporation and its powers and what indeed
it would do, and that is the discussion that is going on with the
President right now.
MR. COHN: You conferred with the Finance Ministers of the
oil-exporting countries during last week's International Mone-

6

£*3
tary Fund meeting. What impression did you get from them on
the prospects for an oil price increase next month?
SECRETARY SIMON: It would be sheer guesswork on my
part to assess whether there will be an increase or not. That is
a political question, not an economic one.
Ifindthat the Finance Ministers of most of the O P E C nations
were moderate. They understand what their responsibilities are,
that a significant increase would indeed damage the delicate balance in the world revival of expansion in all the economies. Of
course, there are those countries that, as a result of their spending, domestic spending programs, would like a price increase to
get more monies to spend in their o w n economies, and they are
using phony economic and financial arguments.
I have no idea w h o will win, but I would certainly hope that
the moderates do. There is no justification for the present price,
much less any increase.
MR. COHN: If the oil exporters go ahead nevertheless and
raise prices and if domestic oil prices are decontrolled, h o w can
you be confident that the recovery will proceed? W h y will these
price increases not devastate the economy as they did in 1974?
SECRETARY SIMON: Devastation is a strong term, and in
1974 the price was quadrupled. A slight increase—if they do increase the prices—we would have to assess exactly what was
going to occur as far as itsfiscalimpact on its economy, and also
it is unclear whether or not w e are going to have decontrol. W h a t
will happen this week will be important in that regard.
MR. ELLIS: We have talked about jobs and inflation, and now
to look a little farther down that road, our economy has been
built and has grown fast on consumer expectations of more, always a higher standard of living, and in part it seems to m e
this easy credit has led to our present difficulties.
M y question is, should Americans be told that in the future
their expectations simply cannot rise as they have in the past,
and if they should be told that, can the economy grow as it has
been accustomed to do?
SECRETARY SIMON: Why, of course. All it requires is a
slight shift in the policies that you so correctly describe that
promote consumption and living for today at the expense of savings and investment.
I think it is striking w h e n you talk about productivity and the
standard of living—you know there is only one w a y to increase
our standard of living, and that is to increase productivity,
which is directly related to capital investment. It means more
jobs, higher real earnings, cheaper goods and services for consumers.

7

^9
M R . E L L I S : But as w e go down this road, relatively speaking,
as the population ages, there will be more retired people depending on relatively fewer working Americans. Can our system, as
we now know it, survive without major change, or must w e have
changes in our economic planning in order to take care of those
who need it?
SECRETARY SIMON: I think we need changes. As I say, we
need to shift the balance, just shift it from one that promotes
consumption to one that promotes savings and investment, so
that w e can get back on the increased productivity where we
were for 20 years after World W a r II.
MR. SPIVAK: Recently you called the foodstamp program a
haven for "chiselers and ripoff artists," and you said that was
one example of letting the government solve problems that people should solve for themselves. Are you in favor of abolishing
the food stamp program entirely?
SECRETARY SIMON: I most certainly am not, and let's put
this food stamp statement I made, along with m a n y other similar
statements on the part of leaders all over the country, and officials, in the proper perspective.
The food stamp program was started to help the poor, to maintain a balanced nutritional diet which all Americans should be
entitled to, and I strongly support the program for the poor. The
problem with it is that the eligibility requirements are so loose
and lax that almost a n y o n e —
MR. SPIVAK: What do you think ought to be done about it?
SECRETARY SIMON: We have to change the eligibility requirements to m a k e sure that the food stamp program be directed to the needy, not to the greedy.
MR. LEVINE: One of your responsibilities in the Treasury
Department is the Secret Service. The N e w York Times editorial
yesterday stated that, "It is startling, after the Secret Service
tightening of its procedures in the wake of the assassinations of
the 1960s, that a vociferous m e m b e r of the Manson family would
wander so easily into the path of a strolling President."
W h a t is your response to that comment? D o you have any
plans for reviewing the Secret Service procedures?
SECRETARY SIMON: The Secret Service procedures are as
adequate as any procedures can be in carrying out their duties
of protecting the various people that they protect by law, and .
they carry it out in a w a y that I think is as professional, if not
more professional, than any other agency in the world in carrying out these duties.

8

5^r

MR. SILK: Mr. Secretary, on decontrol of oil again, Congress
is going to vote this week, and if Congress should sustain the
President's veto of the bill extending oil controls for six months,
would the President still be willing to compromise? Would you
favor a compromise even after his veto had been sustained? In
other words, are you for gradual decontrol or total decontrol?
SECRETARY SIMON: From the beginning the President has
expressed his willingness and his desire to compromise. Remember, in January he presented total decontrol. He then provided
25 months, then 30 months, now 39 months, with no action. Yes,
the President would still consider a compromise based on his
last proposal of a phased decontrol of 39 months.
MR. COHN: Interest rates usually rise in a recovery, and mo
of the experts expect them to rise this time. H o w much will that
retard the recovery in your view?
SECRETARY SIMON: I think that interest rates depend obviously on the demand that you describe. It also depends on the
actual rate of inflation and the inflationary expectations that
have been so deeply ingrained in our economy, and if we continue
to make headway in our battle against inflation, then we can
look for a moderation in interest rates.
MR. ELLIS: What in your view would be an acceptable inflation rate in the years ahead and an acceptable rise in personal
income?
^ SECRETARY SIMON: As far as the inflation rate is concerned, I think anyone would say zero, but let's be practical. I
i think we have to get it back down between the two and the three
nipercent level, which is going to take several years at least to accomplish.
> MR. SPIVAK: You said at one time it is not a matter of
^whether prices of oil will come down, it is a matter of when they
\ will come down. H o w soon do you expect them to come down and
why?
\ SECRETARY SIMON: I would expect if we take the necessary actions, which we certainly have not, in the United States
"and all the other countries in the world, in conserving oil and
get about the job of bringing on the alternate supplies of oil,
certainly by the end of this decade we can see a lower price of
*

:t» MR. SPIVAK: I am sorry, but we must interrupt. Our time is
*:iip. Thank you, Secretary Simon, for being with us today on
i MEET T H E PRESS.

9

<jAe z/roceectinaS of

MEET THE PRESS
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welfare Transcripts m a y be obtained by sending a stamped,
self-addressed envelope and twenty-five cents for each copy to:

MeMe

0Ui

Jnc.

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WaJunytcn. ®. Ctf. 20043

MEET
THE PRESS
is telecast every
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Television Broadcast 12:30-1:00 P.M. E D T

S*7
IHITED STATES DEPARTMENT OF TREASURY
Washingtons D,C.

PRESS CONFERENCE

Held bys
EDWIN H. YEO
Under-Secretary
for
Monetary Affairs
4s00 p.m.
Wednesday, Septesafoer 10, 1975
Treasury Building
Room 4121
15th & Pennsylvania Avenue* B.W.
Washington, D.C.

The above -entitled press conference was convened,
pursuant to notice, at 4s00 p.m.

Utf'DER-SECRETARY YBOs

Good afternoon*

I have a series of points tnat v;e would like to ;
try and lay out. T-he first is that we expect borrowing from ;
i
the public during the July-December hr.If year to be ir. the
|

:-.'-;'.nge of $44 to $47 billion. That is an increase ?:.;osr. o
estimate of $41 billion. The difference is attributable to
three things.
;

One, outlays are running higher th^n had been
expected on the basis of the figures provided to our own j
treasury staff and their derivations from those figures. Two, |
i
\

the suspension of oil import fees amount to $1.0 biXlion.

Andj
j

threes really in a separate area, is that we plan, as a matter |
of policy, to carry a higher cash balance. This giver us a \
better cushion against short—t^ria receipt and outlay
i

variations.
i

I think that those of you who have followed the j

developments of the last ^r.ree to four r*.oaths can appreciate !

this cushion, based on those experiences, that -'Will ensure th?-

we will not be in a situation where developments in the for- \
i
eign exchange market or elsewhere effect our position in terras \
i

\

of our overall estimate.

;

r^e second, point is that we hs-ve 3.one $21.5 billion ,

i
inc."? udi:og the bills that will ha settled on September 18,
Given the borrowing from th-3 public figr.r^ of $4»i :o
$47 billion, this leaves «.x bal.?;*.ca yst to bft dos.«* of

j

\ jj

$22.5 to $25.5 billion

The third point is that today we arcs announcing
3 jj $4»G billion of our new cash borrowing on the £ollo*;:bvj basis; ;
ii

First, a $1.0 billion addition to the 52~^e@k bill, to be
•auctioned September 17, for settlement 3-rrtesRber 23. Th*• •• •
i
»

6 j, w i l l raise the total amount o f bills being auctioned to
V .1 $2.8 biliic,-\. ' :
j

;

8 j) Mart, we will add $1.0 bii.Lio& to the $;*:.0 billion j
9 j quarter-end September 30 2-year note. r£hi'3 means that v/s will?

i
be auctioning, on September 1 6 , $3.0 billion in 2-year not-ss. ;
M 1] We will auction $2*0 billion of 2^tj;r^:.vy 28, 1978 ,•
$2 notes. These will be auctioned on Septesib?«r 24 •••.>.- settlement |
If
o n October 7. This 29-month note is aaothsr addition to \:h*s
U

ead-of-:iiorth notes begun earlier this year.

?5

Ied like to talk a little bit about our plans, HOK

j
5

in the nature of announcements* specific financing ^.m.x^uce-"
•;7

i

roants, but our plans. Our present plan is to pl&co !&#£*

i

erophasis, to reduce the mmk^ise on the bill *nark'3«-.. Spa39

cifically, -£&# 3 and 6~aaonth regular weekly bill ^-icti~:a..

20

We also plan a $2.5 billion intermediate ^ov:ef ix:

71 !

be sold in the second or 'third week of October, ~:.ni a

22 jj

$3.0 billion October 31, 1977, not-6 to b-s scj.d in ;hii- S.-JLAK

23 !

.7:>;x?-ro:s:iE!at'S tine period- second or tnirc5 w^ai x?.? Octobsx .
!i:f;.es^ will r/;t be sold t^cj&the:?? ^99 will bs ;.;b.cl supc.r.r,.:*,: .v

til
.:.:;

The effect of "^tii9 program '/ill bci co flrtrnctf •,*»-

the h i g h e r end of. 'die r a j g e that :: gave y o u iii tsr::;-; o f

j

!i !
'- ji b o r r o w i n g frcir. t h e p u b l i c .

I t w i l l m e a n t h a t in t h e Ho^^ssber ;

M •

\

'•

'*• i- r e f u n d i n g vr;;*li p r o b a b l y r s i s e s-cvr^ n e w c r s h , b u t n o t a
4 tj significant z-invvn-t of new cash*

}

:

»i :

5 ji
T h e o n l y o t h e r n o t e financing w h e r e n e w ca.«?h **ill
t be raised for the reaairid&r o f t h e y a a r w i l l ba o n t h e
6 SJ|

i

I<

;

[;

J

7 M T9:zomi99te:c 31 note? so that 2>y th# end of October, our use of J
, Ii the note market to finance this years second-half deficit ;?:uO. s
£ jj be largely finished. We'111 still have some small imcu^t rel- •
! ative to the nusabars we have been talking ab-jut to dot- bu9 hi •
JO
51 ji ftoves&er and D e c e i v e r f t h e $ & ar^i n o t significant rusab^rs*
12 I8d add that wa are not planning, at this pod.ni;,
to
•slloffer a - •.••• .- cycle not-ja at the end of K^v^«i^ber. This

r

fits
in with a g^n<sr;ib r^solvB in this financing ef bs^ving
}-'•^ is th-$ note ma3cket largely unus&d in Hovexabsr <~.i& Qscc-'ster*
ji
• $ j;
T h e o n l y addifcior*ab thing is t h a t w?*.'<l srMit :::&•. is®
7

'•«

f:o use w h a t h a & coii-vs. to b© called F & d a r a l F^raa^ Bibb fox

g jj cash management purposes* ^ jb-^va no p.tar;3 to as,;, it "vo. ia
effect,
finance the deficits it*s a vehicle to ^eb ^& f.zvn\
*9
20 !! CM place to another place bridging .a,situation v;b*?rt, s-r
'jzxsh "'*dlanc€2 is small[* That is tee i5Xt&:.ru of what I hav& bo 3?y. fek ^u, r-^
;
i.s

2$ jj *-ay qua^tio.v;s?
QYSSTXOHz :«: ^-^-drr if y^ \9-:,^i.ii ;-i-.-:.pi^ia yovr
24 I
• •.;as:o.-.i.-i ib^r £ Xenniriv; bet1 p:*;>"v::\s!b -b'd.s 9^.9 r ^rbi ub • ro?; v^rb',
.25 '

$1
to drop out of the market in November and December?
UNDER-SECbbbARY *>3Qs The timing of o:ir needs was
such that we have to be large borrowers in Ssptaaiber and
October. It seems to us that. sine& we are going to havs to
use th© note market extensively that •>>•& could pla& our
financing in mxch a way t© giv^ room for the November T.%~
funding, and a period of time in which distribution -b
securities can proceed. This avoids a significant ear^ra^t
of not© financing every month*
The timing of our expenditure requirements ra-sant
that the money had to be raised in this tisane period and the<
choice was to raise it in the bill market, in the relatively
short note market, or in tte 'longer note market.
I think that there are persuasive reasons for
reducing our emphasis, at this time, on use of the bill
market* One of the things that I am concerned about- is th&
pi:obl^m of disintermediation, which really starts in rbi-v.
bill market.
QUESTION? Do you have any other $:easo2^s?
UNDER-SECRETARY YEOs Y«s, I this* that tfe have
asked a great deal of the bill market. We're goixsc? tu be
continuing to raise money the:c&? wsrr& balking about d^gre^s
of emphasis* I don't want to be misunderstood, we will be a
continuous borrower of net cash in the bill ^a.rkat.,
I think that s. p^;:dxiv«: yield ciirve is d*;:drabk to

get off financing needs of the sisa that \v£ are 1 robing at,

\

I think that tba zczt of usi^g the ioag-b^r^ or intermediate i
«

loag--.:sri3 note araa anvmore than we .re planning to us*j it,

I
J

i
and the ability of the market to digest large scale financing j
i
in tba longer iatermedieite area, would be asking too much.
I

I
X should esi^phasise that the note to be sold iu
j
mid-October, aside from the $3*0 billion 2-year note, wil.". be

j
in the longer intermediate area.
j
QUBSTIOHJ Are you saying that you &r& going to be j
raising something like $13 to $16 billion in the bill ^arbst j
j
between now and the mnd of December?
j
ONDER-SECRETARY YEOs We would be raising southing j
on that order, 1*11 get you the exact number. Xtfs $11 to S
$13 billion. j
QUESTION That still leaves 93.0 billion at the
top end of your cssh borrowing range unaccepted for. ^feera j
I
does that come from?
j
U^SR-SBCRET&RY YEO: We have assumed teat you are j
including the funds that I ms&tiaaed, $*5Q to $1.0* billion,
in the November re funding * j
QUESTIONs That twild take part or it. j
U&DER-SSCRET&RY YSOs Yes, and the pessibbe
$1*0 billion addition* the iXsorasbar 31 2-y^^: n v&s ,
QUESTION: Is that $,50 to $1.0 bullion Nov'-smse;; -,
';*»iTX*.ciing s. long funding pes^ibiiitv?

i
!

ONDER-SECRETM,* bbbs

r

£hcit99 certainly crn option.

QUESTION: xbs $7.0 to $10.0 billion on tha b^*;;i*
shs&t, feat naa meant new borrowing in the 3 to 6 ^fith bill
market, is that right?
tfaaSR-SECRETlU&Y YEOs >:b«, and also the so-called
Federal Funds bills. I'd bbcs to emphasise that rind^cibsg of
this sca3.e is a result, it*s a trueism but t\ result, of a very
large deficit and I think that we can sae what the Secretory
and others have hm®n alluding to in terms of the b&ak of
financing on this scale.
This is an effort ir.e fi&mea this on a& efficient
a basis as possible, and on a basis in which w® ^99t havw
some coaficb^oa in our estimates*
l5m not going to givs you specific estimam^ in
the future. I4m going to gi\?e you a range. £*n referring to
the borrowing from the public?. I think that all &£ us know
how difficult it is to develop a precise figure, txm myriad
of variablesf the Impact, from time to time, on bbat figuref
and w© ar& inducing more pracision into the pr<i»c&ss th£&
really exists by giving a .single figure,.
QUESTIONS HOW large a cash balance de you waxy-.t
to carry?
UNDER-SECRETARY YEO: This should $i*m us, as of
the e-nd of the year, a czBh b&bane& i.n the £7.0 bo $9,0
billion range.

QUESTIONS

How Envsh of an increase is bb-t?

UNDER~SECKET£RY YEOs

Thas 92*Q billion.

We gave

;
i
)

yov. a range borrowing from the public of $4* to $47 billion.

j
x
You can assume that a part of that §3.0 bib lion difference I
can be an adjustment in that end^of-ygar cask balance figure.
QUESTIONS

Giving the reasons for tkm increase in

your borrowing, you did not include encashment of specials, as
you had givan as a reason previously.
given was $1.5 billion.

I think the figure

Why is that not included new?

UNDER-SECRETARY YEOs

Our assumptions asanas no

significant change there, and teat is another reason for -the
$3 billion spread in our market borrowing. The $1*5 billion

I

that we mentioned was in explaining the increase in our mar™
ket borrowing in August. That was something that had happened.!
I'm glad you mentioned that because that^s an ascampl® of one of the factors that can impact thes& «stima>t&s. i
QUESTION? I wonder if you would discuss the isapact
that the increase in the caeh balance will have on the w^9&y
supply and whether the Fed has h®mi apprised of your decision |
and whether they plan any measures to make up for any con-

\
\

tracti-on in the money supplies?

I'ss not exactly ftimiliar *?i?::h j

what bbs cash balance is now, but it seems like itbtf iw the
$3*0 billion range, that you wuld be increasing bba cash j
balance by about $6.0 billies.
O^DER-SECRETARY YbC^

No*

I'm 3ayiag that the

estimates here, $44 to $47 billion, borrowing frcru tie public j
estimate, would result at year-end, in a c^.99 bal&acs of

j

between $7.0 End $9.0 billion Tb&t is tbs specific ib-cr^as: j
in *Jc=..sh balance that I ^mtio^&a. S

i
The second tiling that I said was that w& plan to

-;

run a little larger cash balance because of sas& of the

things that Joe mentioned in terms of esca-U •.••«&t of specials.
•)

W© are not planning on any such development? but there are a j
variety of things that can happen between now and year-end. |
I think it would be not. only conv^sd^b, which is j
not the real point, but much more efficient in terms r;b j

j
distortions to markets and changes in market expectations 9f \
i
we had a slightly higher cash balance.
1
In terms of the average increase ia cash £>rb.3#.ce
j
1

for this period, we don't have a figure. The specific tncz^asi
i
that I mentioned had to do with the ^nd-of^-^ar number that- j
we are geared toward in putting together the resaaiad®:?: of j
s
1

the half-year program*
In planning, you have to come to a specific -r^c^rb- ;
y#<f.r figure since we are talking about the conclusion of tha
second half financing.
QUESTION: You mentioned concern *&•*>&£. disintersnsdiation. Do you see economic forces building teward that
possibility now?
UNDER-SECRETARY YEOs X tnlsk tliat our concarr. "-»

based on the increase in interest rates that we have ^xp^.rienced and in planning this program* "fe planned it *>±th a

consider at i£.~'i being -*> E&nirnlza the ®zxs99 of thir; prcgr
on th«s disinterm^dia^Xon process*
I don't reaJLly thi&k 1 can coassm&n-t on an interest
rate forecast, but I can tell you the thinking tbut w<sat .Into
putting this program together, and that was certain 'y a facto]
QUESTIONS How ar@ you defining iatermed:b-:>te note
for purposes of th$ October finances?
UNDER-SECRETARY YEOi X think it is certainly
longer than where we have been* flnanci^T, where we will have
financed.
QUESTION: Longer than t^xo and ^n^-haXf years^
UNDER-SECRE-mEY YEO: Longer t&aa 29 months.
$$a hara triad to do this in ssich ^ way, sad announce it In snoh a way,* that MB are as cie&x a® possible I

know it is a specific annomssss&fcjiatj lt*s fairly d&tail#d. if
thera is anything I can do to cl&ziify this h&fore the wires
are e?:secrus^d and we harm an embargo of f;rrs mmites.
QUESTION: So*; mixch higher ars ou>JL&y.«s tr^vis^
than you expected?
UNDER-SECRETARY YBOs Oist/nys are srusnirg $2 ,3 bo
:r3*0 billion higher than w# had asbicip^t^a, I aoz**t want

t.o 'wnsvtfsnt on thsa specific ar^ss, it's r^lativaly wids-^vpr
.=bi-i:.*v plus import: fts-aa, w'&ich ^bc:e £1,0 hbibiom c^fc,

tff the basis for the estimates that resulted 5-n the $44 to
$47 billion figure.
bbEibbbO^s fJc-(7 ai:# rev^nus ^ti^ntss hold-.-.r ^p'r
bbD^ii-'ti^CR^^RY YEOs Our ^m^wm rsstisas^Stf ?*r&
holding up, and I will forecast ce.m item vbich W&12I& b^ a
in&te£;ial increase in corporate tax Mesipts, whi^b <&ould hava
&n isepact on 'the first h-bi£ of calendar 1976, the second half
of this fiscal year.
Our problem, a$i<3& from the specific, is os bh#
expenditure side.
QUESTION: Why ax® corporate tax receipts "-9::y9,9:>s&
t& be increasing higher than you expected?
UNDER-SECRETARY YEOs 2 didn't say higher than ®3cpected, but I think that the increase in economic activity,
the recovery, is likely to set the stage for a recovery in
corporate profits and an attendant increase, oarh&ps substantial, in corporate tass receipts*
(39hereupoa, at

/,

:25 o'clock p.m., the pzmss

conference was concluded.)

Contact:
FOR IMMEDIATE RELEASE

Robert E. Harper
964-5775
SEPTEMBER 8, 1975

TREASURY SECRETARY SIMON NAMES ROBERT I. SONFIELD
AS U. S. SAVINGS BONDS CHAIRMAN FOR LOUISIANA
Robert I. Sonfield, President, Maison Blanche, New Orleans,
is appointed Volunteer State Chairman for the Savings Bonds
Program in Louisiana by Secretary of the Treasury William E.
Simon, effective immediately. Mrs. Francine I. Neff, National
Director, U. S. Savings Bonds Division, and Treasurer of the
United States, today presented the certificate of appointment
to Sonfield at a bankers breakfast held in The Presbytere.
He will head a committee of business, banking, labor,
government and media leaders who --in cooperation with the
U. S. Savings Bonds Division -- assist in promoting Bond
sales throughout the state. He succeeds James H. Jones,
former Chairman of the Board and Chief Executive Officer, First
National Bank of Commerce, New Orleans, who has received the
Treasury "Award of Merit".
Sonfield, born in 1928, is a New Orleans native. He was
graduated from Tulane University in 1950 with a BA degree. In
February 1950, he joined Maison Blanche as Assistant to the Store
Manager. Later that year he entered the Navy, serving as Staff
Officer, Commander-in-Chief, Allied Forces, Southern Europe,
until 1952. He returned to Maison Blanche in November of that
year.
In 1961, he was named Divisional Merchandise Manager,
Home Furnishings; in 1967, Senior Vice President and General
Merchandise Manager; in 1968, Executive Vice President and
General Merchandise Manager. He assumed his present post in 1969,
along with the position of Vice President and Director, City
Stores Co., New York, parent firm of Maison Blanche.
He is active in numerous business, civic and professional
activities, including -- Vice President, New Orleans Tourist
( over )

- 2and Convention Commission, 1975; Chairman, New Orleans Symphony
Fund Drive, 1974-75; Board Member, Chamber of Commerce, First
National Bank of Commerce, New Orleans Philharmonic Symphony,
United Way, Loyola University. Sonfield was voted one of the
Ten Outstanding Men in New Orleans in 1974 by the Institute for
Human Understanding.
He and his wife, the former Andrea Thome Beerman, have
three sons '-- Robert, Jr., Justin and John -- and a daughter,
Loren.

oOo

b to

ederal financing bank

C <£>

</> 9
</> C M

WASHINGTON, D.C. 20220

FOR IMMEDIATE RELEASE

<u o

September 8, 1975

SUMMARY OF LENDING ACTIVITY
August 17 - August 31, 1975
Federal Financing Bank lending activity for the period
August 17 through August 31, 1975, was announced as follows by
Roland H. Cook, Secretary:
The FFB made the following loans to utility companies
guaranteed by the Rural Electrification Administration:
Interest
Rate
Maturity
Amount
Borrower
Date
$2,778,000

8.720% 12/31/09

8/19 Cooperative Power
Association (Minnesota)

1,623,000

8.730% 12/31/09

8/20 South Mississippi
Electric Power Association

3,325,000

8.180% 8/22/77

8/25 Associated Electric
Cooperative (Missouri)

5,000,000

8.172% 8/26/77

8/18

Tri-State Generation
& Transmission (Colorado)

Interest payments are made quarterly on the above REA loans.
Amtrak, the National Railroad Passenger Corporation, made
three drawings against its lines of credit with the Bank:
Date

Amount

Interest
Rate

8/18
8/29
8/29

$10,000,000
15,000,000
7,000,000

6.733%
6.671%
6.671%

Maturity
9/30/75
9/30/75
12/1/75

On August 19, the US Railway Association borrowed $5 million
from the Bank under USRA Note No. 3 which matured August 25, 1975
The rate of interest was 6.858%. On August 25, 1975, USRA rolled
over the total $69.2 million borrowed under Note No. 3, and
borrowed $477,000 at 6.755% interest. The new maturity is
November 24, 1975.
(Over)

9>
On August 25, the FFB purchased a 5-year, $500 million
Certificate of Beneficial Ownership from the Farmers Home
Administration. The interest rate is 8.78%, paid on an
annual basis.
The Tennessee Valley Authority borrowed $120 million from
the FFB on August 28, 1975. The interest rate is 6.886%.
The loan matures November 26, 1975. Proceeds of the loan were
used to pay off a $100 million note maturing with the Bank, and
to provide $20 million new money for TVA.
On August 29, the Department of Health, Education and
Welfare borrowed $4,255,000 from the Bank under the Medical
Facilities Loan Program. The interest rate is 8.575% and the
maturity is July 1, 1999.
The Bank signed loan agreements with the following governments:
8/28 Greece $30,000,000
8/29
China

$40,000,000

These agreements are under the Foreign Military Sales Act
and guaranteed by the Department of Defense.
Federal Financing Bank loans outstanding on August 31, 1975
total $14.6 billion.

tBepariimniofi^JRl/\$UflY

ii

NGTON, D.C. 20220

TELEPHONE 964-2041

i^
FOR IMMEDIATE RELEASE

September 8, 1975

RESULTS OF TREASURY'S WEEKLY BILL AUCTIONS
Tenders for $2.9 billion of 13-week Treasury bills and for $3.2 billion
of 26-week Treasury bills, both series to be issued on September 11, 1975,
were opened at the Federal Reserve Banks today. The details are as' follows:
RANGE OF ACCEPTED
13-week bills
COMPETITIVE BIDS: maturing December 11, 1975

High
Low
Average

Discount
Rate

Investment

Price

Rate U

98.393
98.379
98.385

6.357%
6.413%
6.389%

6.57%
6.63%
6.60%

26-week bills
maturing March 11, 1976
Price

Discount
Rate

Investment
Rate 1/

96.526
96.510
96.517

6.872%
6.903%
6.889%

7.24%
7.27%
7.26%

Tenders at the low price for the 13-week bills were allotted 4%.
Tenders at the low price for the 26-week bills were allotted 98%.
TOTAL TENDERS RECEIVED AND ACCEPTED BY FEDERAL RESERVE DISTRICTS:
District

Received

42,610,000
$
boston
,313,710,000
New York
41,300,000
Philadelphia
102,045,000
Cleveland
58,115,000
Richmond
39,185,000
Atlanta
490,810,000
Chicago
63,325,000
St. Louis
26,885,000
Minneapolis
57,325,000
Kansas City
62,470,000
Dallas
446,835,000
San Francisco
TOTALS$4>744,615,000

Accepted
$
29,410,000
2,135,880,000
36,050,000
51,345,000
32,370,000
36,525,000
131,450,000
37,605,000
13,085,000
52,780,000
32,470,000
311,450,000

Received

Accepted

$
67,980,000 $
35,980,000
4,561,640,000
2,496,080,000
67,565,000
12,565,000
223,175,000
82,575,000
54,740,000
22,940,000
57,595,000
20,995,000
492,655,000
74,055,000
43,625,000
15,625,000
33,635,000
7,615,000
34,705,000
30,025,000
29,290,000
19,290,000
577,030,000
382,930,000

$2,900,420,000 a/ $6,243,635,000

$3,200,675,000 b/

a/ Includes $535,650,000 noncompetitive tenders from the public.
h./ Includes $280,375,000 noncompetitive tenders from the public.
1/ Equivalent coupon-issue yield.

FOR IMMEDIATE RELEASE

September 9, 1975
TREASURY'S WEEKLY BILL OFFERING

The Department of the Treasury, by this public notice, invites tenders for
two series of Treasury bills to the aggregate amount of $ 5,600,000,000, or
thereabouts, to be issued September 18, 1975, as follows:
9tday bills (to maturity date) in the amount of $2,700,000,000, or
thereabouts, representing an additional amount of bills dated June 19, 1975,
and to mature December 18, 1975 (CUSIP No. 912793 YC4), originally issued in
the amount of $ 2,300,690,00Q the additional and original bills to be freely
Interchangeable.
182-day bills, for $2,900,000,000, or thereabouts, to be dated September 18, 1975,
and to mature March 18, 1976

(CUSIP No. 912793 YY6).

The bills will be issued for cash and in exchange for Treasury bills maturing
^September 18, 1975, outstanding in the amount of $5,551,430,000, of which
I Government accounts and Federal Reserve Banks, for themselves and as agents of
foreign and international monetary authorities, presently hold $2,704,965,000.
These accounts may exchange bills they hold for the bills now being offered at
the average prices of accepted tenders.
The bills will be issued on a discount basis under competitive and noncompetitive bidding, and at maturity their face amount will be payable without
interest.

They will be issued in bearer form in denominations of $10,000,

$15,000, $50,000, $100,000, $500,000 and $1,000,000 (maturity value), and in
book-entry form to designated bidders.
Tenders will be received at Federal Reserve Banks and Branches up to
;i

one-thirty p.m., Eastern Daylight Saving time, Friday, September 12, 1975.
.c:
Tenders will not be received at the Department of the Treasury, Washington.
Each tender must be for a minimum of $10,000. Tenders over $10,000 must be in
multiples of $5,000. In the case of competitive tenders the price offered must
be expressed on the basis of 100, with not more than three decimals, e.g., 99.925.
Fractions may not be used.
Banking institutions and dealers who make primary markets in Government

(OVER)

-2securities and report daily to the Federal Reserve Bank of New York their positions
with respect to Government securities and borrowings thereon may submit tenders
for account of customers provided the names of the customers are set forth in
such tenders. Others will not be permitted to submit tenders except for their
own account.

Tenders will be received without deposit from incorporated banks

and trust companies and from responsible and recognized dealers in investment
securities.

Tenders from others must be accompanied by payment of 2 percent of

the face amount of bills applied for, unless the tenders are accompanied by an
express guaranty of payment by an incorporated bank or trust company.
Public announcement will be made by the Department of the Treasury of the
amount and price range of accepted bids.

Those submitting competitive tenders

will be advised of the acceptance or rejection thereof.

The Secretary of the

Treasury expressly reserves the right to accept or reject any or all tenders,
in whole or in part, and his action in any such respect shall be final. Subject
to these reservations, noncompetitive tenders for each issue for $500,000or less
without stated price from any one bidder will be accepted in full at the average
price (in three decimals) of accepted competitive bids for the respective issues.
Settlement for accepted tenders in accordance with the bids must be made or
completed at the Federal Reserve Bank or Branch on September 18, 1975, in cash or
other immediately available funds or in a like face amount of Treasury bills
maturing September 18, 1975. Cash and exchange tenders will receive equal treatment.

Cash adjustments will be made for differences between the par value of

maturing bills accepted in exchange and the issue price of the new bills.
Under Sections 454(b) and 1221(5) of the Internal Revenue Code of 1954. the
amount of discount at which bills issued hereunder are sold is considered to
accrue when the bills are sold, redeemed or otherwise disposed of, and the bills
are excluded from consideration as capital assets. Accordingly, the owner of
bills (other than life insurance companies) issued hereunder must include in his
Federal income tax

return, as ordinary gain or loss, the difference between

the price paid for the bills, whether on original issue or on subsequent purchase,
and the amount actually received either upon sale or redemption at maturity
during the taxable year for which the return is made.
Department of the Treasury Circular No. 418 (current revision) and this notice»
prescribe the terms of the Treasury bills and govern the conditions of their
issue.

Copies of the circular may be obtained from any Federal Reserve Bank or

FOR RELEASE UPON DELIVERY
STATEMENT BY THE HONORABLE STEPHEN S. GARDNER
DEPUTY SECRETARY OF THE TREASURY
BEFORE THE
SUBCOMMITTEE ON FINANCIAL INSTITUTIONS
SUPERVISION, REGULATION AND INSURANCE
HOUSE COMMITTEE ON BANKING, CURRENCY AND HOUSING
WEDNESDAY, SEPTEMBER 10, 1975, 10:00 A.M.

Thank you Mr. Chairman
As you know, this Administration is committed to the
repeal of regulation and regulatory authority wherever such
regulatory constraints are outmoded and counterproductive,
and restrict the efficient utilization of our economic system.
The Regulation O and related ceilings on time and savings
deposits are becoming increasingly less effective and, as
a direct corollary, progressively more unfair to the consumer
saver.
At the time the scope of Regulation Q was extended in
1966, Congress recognized that such action would not cure the
basic imbalances in supply and demand for credit, but the
Congress hoped to provide thrift institutions with a sufficient
flow of funds to assure that they could carry on their lending
function in the mortgage market.
In accordance with the legislative intent, the authority
granted by Regulation 0 has been historically implemented in
two ways, each with its own specific objective. First,
interest ceilings have been maintained low enough so that the
institutions covered could afford to pay the stipulated
maximum rate. Indeed the ceilings have helped to prevent an
escalation of the excessive rate competition Congress sought
to moderate in 1966, and accordingly the ceilings have protected those institutions that would have been unable to meet
such competition from being forced out of the residential
WS-378

mortgage business. Second, a differential in the permissible
rate of interest has been maintained to attempt to provide
competitive parity between different types of financial
institutions. Again, the thrust of the regulators1 efforts
has been to assure that the mortgage granting institutions
which have limited banking powers were protected.
While we may not agree with the Congressional rationale in
enacting Regulation Q, we recognize the objectives of such
legislation. However, it is our belief that events of the last
ten years clearly establish that Regulation Q has not met those
objectives. Despite, or perhaps as a result of the existence
of the ceilings, disintermediation in every high interest
period since 1966 has grown progressively more disruptive; each
time it has ceased only when interest rates have declined.
Your doubts that "Regulation 0 due to a variety of circumstances...
is not as effective in achieving its primary purpose of
insuring a steady flow of deposits in thrift institutions as
originally contemplated when first adopted in 1966," are well
founded.
In any market-oriented system, administered interest rates
set artificially low will stimulate borrowers and suppliers of
funds to evade such controls. Enterprise, which is part of our
free enterprise system, also means that a market demand will be
filled by ingenious means.
From 1962 and especially from 1966 on, time deposits
experienced a remarkable growth as compared to passbook accounts.
By the end of 1974 they constituted over 50 percent of the
deposits of savings and loan associations and about two-thirds
of the time and savings deposits of commercial banks. Since
financial institutions traditionally perceived time deposits to
be stable funds because of the substantial penalties for their
early withdrawal, they promoted them aggressively. As a result,
depositors became sensitized and sophisticated about the yields
of alternative savings investments, and over time became
increasingly willing to take advantage of favorable opportunities
in other, less routine, but secure instruments. During the
summer of 1974, a depositor could earn 5-1/4 percent in a passbook account at his savings and loan association, but if he was
wealthy enough to afford the $100,000 minimum purchase
requirement of a large denomination bank certificate of deposit
he could earn almost 12 percent. Further, $25,000 was
sufficient to earn the same rate with 90-119 day prime commercial
paper.
Money market mutual fund managers developed a system for
pooling
the size
small
individual
savers
into blocs
of
sufficient
to funds
take of
advantage
of the
$100,000
time deposit

J27
certificate. They offered sufficient convenience and liquidity
to attract large numbers of savers unwilling to be accorded
the second class treatment mandated by the deposit rate ceilings.
In March of 1974, there were seven such funds in existence
with combined assets of less than $250 million. One year
later 33 funds accounted for almost $3.8 billion in assets.
While it is more difficult to quantify, other savers entered
the capital markets directly in search of safe, liquid, and
high-yielding investments, such as Treasury and sponsored
agency securities, and of course this resulted in severe savings
outflows from thrift institutions. The protection sought to
be obtained by savings institutions through application of
Regulation Q was offset by savings outflows for direct investment
at higher return rates elsewhere.
As mortgage-oriented institutions have found the amount of
dollars available to them reduced by disintermediation, they
have increased their efforts to wrest a larger share of the
remaining interest rate sheltered funds, from their competitors,
the commercial banks. Thrift institutions recognized that the
interest rate differential, which was intended to equalize the
inherent competitive advantage of full-service banking, could
result in an increased market share if the services they
offered could be more equal. At the same time commercial banks
sought to offer more services, both to maintain or increase
their competitive advantage, and to maximize the profit potential
of the relatively low cost consumer deposit.
Aggressive management, state legislatures, trade associations,
and even the regulatory agencies themselves have joined in
this escalating battle of competitive equality. This Committee
is well aware of the recent actions of the Maine and Connecticut
legislatures to permit expanded powers and checking accounts to
state chartered thrift institutions, and of other attempts to
place those institutions on a more competitive full-service
basis with banks.
The growth of competition between institutional types has
largely been in the best interest of the consumer, and should
be encouraged. The battle has had its unfortunate consequences,
however, in that the controversy engendered by these actions,
together with actual or feared changes in the differential,
have obscured the real issue — that durina periods of high
interest rates, all institutions are competing for an increased
share of rapidly diminishing market.
Approximately two years ago, we submitted to Congress a
proposal for financial reform based largely on the findings
of the Hunt Commission. Although the proposal encountered strong

- 4 opposition at first, two successive periods of high interest
rates and disintermediation have provided convincing arguments
for the soundness of this approach. During this period, an
increasing variety of responses by regulators and others to
changing market forces have brought about some piecemealing of
financial reform, an approach which cannot hope to provide the
balance and comprehension necessary to insure sound progress.
We are delighted that this Committee, with its FINE study and
these series of hearings, has served notice of its recognition
of the problems which can result from inconsistent and piecemeal
reform and we applaud the Committee's goal of resolving these
questions in a swift and orderly fashion.
Mr. Chairman, we need a clear and precise statement of
national policy on financial reform. We need a m a p — a plan
for the successful implementation of balanced and viable reform
over the next several years. It must be comprehensive and
fair, to assure the maximum opportunity for growth and success
for all financial institutions in a changing society.
ri-

Despite our belief that deposit rate regualtion is not the
appropriate course in the long run, we recognize that the
ceilings do represent the only competitive protection for
mortgage-oriented thrift institutions at the present time. It
is our belief that the ceilings should be extended until next
June, to enable the Congress to act on a new program of financial
reform. We feel the ceilings should be retained as a part of
any such reform program — but only until they are no longer
necessary, and at that time they should be eliminated.
Similarly, it is our belief that the power to impose a
differential should be continued to balance the inherent competitive difference between institutions, until an acceptable
degree of competitive equality is achieved through comprehensive
financial reform.
In considering the differential, it must always be kept in
mind that we are not dealing simply with a mathematical fraction,
but rather with a complex series of ever-changing market
conditions which must be recognized and monitored, analyzed and
responded to accordingly. There are so^.e instances in which a
differential might not be appropriate as in the case of passbook
savings accounts for towns or municipalities, or possibly for
IRA or Keogh plan accounts. We believe strongly that the
respective regulatory agencies are best equipped to analyze
changing market conditions and to react quickly when such changes
occur. As a result, the authority of such regulators to establis
ceiling rates and the differential under Regulation Q should be
continued.

&?
Finally, we would like to express our opposition to the
payment of interest on demand deposits. The homogenization
of savings and transaction balances which would result from
the payment of interest on demand deposits not only gives
rise to serious questions regarding monetary policy and
reserve requirements of and between banking institutions, but
also raises substantial concern as to whether the payment of
interest on demand deposits would not severely diminish
consumer benefits resulting from the phasing out of Regulation
Q. Further, economists tell us that in the period 1974 through
1985 our estimated cumulative investment needs in the U.S. will
range from $4 to $4-1/2 trillion. Much of this capital must
come from small pools of individual savings. We must therefore
do everything possible to encourage the growth of these deposits.
While we support the kind of evolutionary change evidenced
by NOW accounts and electronic funds transfer systems, we view
such changes as less significant than the fundamental changes
which would result from the payment of interest on demand
deposits. Indeed the changes which are now taking place and
which are, in some instances, tending to blur the distinction
between demand and time deposits, will provide valuable insight
into this complex issue. We are convinced that in this case
a reasoned judgment based on sufficient information and understanding will be in the ultimate best interest of the consumer,
of the financial system, and of the economy.

$

A D D E N D U M

Attached hereto are two charts which demonstrate that
during the post - 1966 period the volatility of total
mortgage lending, and particularly savings and loan
association lending, has increased despite the imposition of
Regulation Q ceilings.
In analyzing Chart 1 it should be noted that in 1969-1970
the decline in activity by savings and loan associations
accounted for 63 percent of the total decline in residential
mortgage lending. During the high disintermediation periods
of 1973 and 1974 the industry's share of the total decline
increased to 82 percent and 87 percent, respectively.
Chart 2 demonstrates that during high interest rate periods
when the need for mortgage credit is greatest, savings and
loan associations reduced their share of the total market.
Conversely, when credit is relatively easy, the industry's share
increases substantially.

CHART 1

so-

S&L MORTGAGE LENDING AND
RESIDENTIAL nORTGAGE GROUTH

1316
Changes in residential mortgages outstanding

14-

in

.Changes in S&L holdings of mortgages

12-

o
_J

10-

CD

d-

60

61

62

63

64

65

66

67

68

69

* Seasonally adjusted quarterly flows
Source: Federal Reserve Flow of Funds
• % ^ •—• « • s

<___\"<R/VV/xT/V7" J-JBRsIs?.

70

71

72

73

74

75

^

CHART 2

1 ** 0 "T

S&L SHARE OF MORTGAGE LENDING,*
19G0-1975II

9 0 SO
70
60-f
<-> s Q - i
or "
LU

4030£010j

60

r-,i 62

63

64

65

66

67

bS

b9

70

71

(Z

ro. 4

mortgage holdings of S&L's as a percent of changes in residential mortgages
*rhanaes an

.5

Contact:

Herbert C. Shelley
X2951

FOR IMMEDIATE RELEASE September 10, 1975 ^^-^
TREASURY ANNOUNCES PRELIMINARY
COUNTERVAILING DUTY DETERMINATION
Assistant Secretary of the Treasury, David R. Macdonald,
announced today a preliminary determination in the countervailing duty investigation of hydrogenated castor oil and
12 hydroxystearic acid from Brazil. Under the U.S. Countervailing Duty Law (19 U.S.C. 1303), the Secretary of the
Treasury is required to issue a preliminary determination
within six months after a petition is received. The
petition in this case was received March 10, 1975, and a
notice to that effect was published in the Federal Register
of April 30, 1975. The Treasury has until March 10, 1976
in which to issue a final determination.
Treasury's preliminary affirmative determination
indicates that bounties or grants are being paid or bestowed
within the meaning of the statute. If a final affirmative
determination is made, the Countervailing Duty Law requires
the Secretary of the Treasury to assess an additional duty
on merchandise benefiting from such bounties or grants.
Notice of this action will appear in the Federal
Register of September 11, 1975. During calendar year 1974,
imports of the two castor oil products were valued at
approximately $1 million.
*

*

*

*

'Departmental IheJREASURY
ITON, D.C. 20220

TELEPHONE 964-2041

For information on submitting tenders:

TELEPHONE W04-2604

J2^7

FOR RELEASE AT 4:00 P.M. ' September 10, 1975
TREASURY TO AUCTION $5.0 BILLION OF NOTES
The Treasury will auction to the public $3.6 billion of 2-year notes, and
$2.0 billion of 29-month notes. This will refund $2.0 billion of notes held by
the public maturing September 30, and will raise $3.0 billion new cash. Additional
amounts of the notes may be issued at the average price of accepted tenders to
Government accounts and to Federal Reserve Banks for themselves and as agents of
foreign and international monetary authorities, which hold $0.1 billion of maturing
notes.
•-.•••.••
The notes to be auctioned will be: >.
$3.0 billion of Treasury Notes of Series M-1977 dated September 30,
1975, due September 30, 1977 (CUSIP No. 912827 EX 6) with interest
, payable on March 31:and September 30, and
$2.0 billion Of Treasury Notes of Series G-1978 dated October 7,
1975, due February 28, 1978 (CUSIP No. 912827 EY 4) with interest
payable February 29 and August 31, 1976, and thereafter on February 28
and August 31.
-.•....«:
The coupon rates will be determined.after tenders are allotted.
The notes will be issued in registered and bearer form in denominations of
?5,000, $10,000, $100,000 and $1,000,000, and will be available for issue in bookmtry form.^Payment fOr the notes may not be made through tax and loan accounts.
Tenders for the 2-year notes will be received up to 1:30 p.m., Eastern Daylight
laving time,;Tues4ay, September 16, and tenders for the 29-month notes will be
received lip to 1:30 p.m., Eastern Daylight Saving time, Wednesday, September 24,
it any Federal Reserve Bank or Branch and at the Bureau of the Public Debt, Washington,
). C. 20226; provided, however, that noncompetitive tenders will be considered timely
eceived if they are mailed to any such agency under a postmark no later than
eptember 15 for the 2-year notes and September 23 for the 29-month notes. Each
ender must be in the amount of $5,000 or a multiple thereof, and all tenders must
tate the yield desired, if a competitive tender, or the term "noncompetitive", if a
loncompetitive tender. Fractions may not be used in tenders. The notation "TENDER
'OR TREASyRY NOTES (Series M-1977 or Series G-1978)" should be printed at the bottom
'f envelopes in which tenders are submitted.
Competitive tenders must be expressed in terms of annual yield in two decimal
laces, e.g., 7.11, and not in,terms of a price. Tenders at the lowest yields, and
oncompetitive tenders, will be accepted to the extent required to attain the amounts
ffered. After a determination is made as to which tenders are accepted, a coupon
ield will be determined for each issue to the nearest 1/8 of 1 percent necessary to
ake the average accepted prices 100.000 or less. Those will be the rates of interest
hat will be paid on all of the securities of each issue. Based on such interest

(OVER)

9'
rates, the price on each competitive tender allotted will be determined and each
successful competitive bidder will pay the price corresponding to the yield he bid.
Price calculations will be carried to three decimal places on the basis of price per
hundred, e.g., 99.923, and the determinations of the Secretary of the Treasury shall
be final. Tenders at a yield that will produce a price less than 99.501 will not
be accepted. Noncompetitive bidders will be required to pay the average price of
accepted competitive tenders; the price will be 100.000 or less.
The Secretary of the Treasury expressly reserves the right to accept or reject
any or all tenders, in whole or in part, and his action in any such respect shall
be final. Subject to these reservations noncompetitive tenders for $500,000 or less
for each issue of notes will be accepted in full at the average price of accepted
competitive tenders.
Commercial banks, which for this purpose are defined as banks accepting demand
deposits, and dealers who make primary markets in Government securities and report
daily to the Federal Reserve Bank of New York their positions with respect to Government securities and borrowings thereon, may submit tenders for the account of
customers, provided the names of the customers are set forth in such tenders. Others
will not be permitted to submit tenders except for their own account.
Tenders will be received without deposit from commercial and other banks for their
own account, Federally-insured savings and loan associations, States, political subdivisions or instrumentalities thereof, public pension and retirement and other public
funds, international organizations in which the United States holds membership,
foreign central banks and foreign States, dealers who make primary markets in Government securities and report daily to the Federal Reserve Bank of New York their positions with respect to Government securities and borrowings thereon, Federal Reserve
Banks, and Government accounts. Tenders from others must be accompanied by payment of
5 percent of the face amount of notes applied for. However, bidders who submit checks
in payment on tenders submitted directly to a Federal Reserve Bank or the Treasury may
find it necessary to submit full payment for the notes with their tenders in order to
meet the time limits pertaining to checks as hereinafter set forth. Allotment notices
will not be sent to bidders who submit noncompetitive tenders.
Payment for accepted tenders for the 2-year notes must be completed on or before
Tuesday, September 30, 1975. Payment for accepted tenders for the 29-month notes
must be completed on or before Tuesday, October 7, 1975. Payment must be in cash,
8-3/8% Treasury Notes of Series G-1975, which will be accepted at par, in other
funds immediately available to the Treasury by the payment date or by check drawn
to the order of the Federal Reserve Bank to which the tender is submitted, or the
United States Treasury if the tender is submitted to it, which must be received at
such Bank or at the Treasury no later than: (1) Thursday, September 25, 1975, for
the 2-year notes and Thursday, October 2, 1975, for the 29-month notes if the check
is drawn on a bank in the Federal Reserve District of the Bank to which the check is
submitted, or the Fifth Federal Reserve District in case of the Treasury, or (2)
Tuesday, September 23, 1975, for the 2-year notes and Tuesday, September 30, 1975, for
the 29-month notes if the check is drawn on a bank in another district. Checks
received after the dates set forth in the preceding sentence will not be accepted
unless they are payable at a Federal Reserve Bank. Where full payment is not
completed on time, the allotment will be canceled and the deposit with the tender
up to 5 percent of the amount of notes allotted will be subject to forfeiture to the
United States.

Prospective Treasury Net Borrowing From The Public
July - December 1975
($ Billions)
Bills Coupons Total
Done to Date 13 8 1/2 21 1/2
Announced today:
Additional September 23 bills 1
Additional September 30, 1911,
2-year cycle notes
.February 28\, 1978 notes —2
Total Announced

1
—1

3

4

Planned (Specifics to be announced)
Increase in October, November/
December 52-week bills
($1 billion each)
Intermediate term note 2 1/2
October 31, 1977 note -3
Total planned
'

3

3~~

5 1/2

1TT72

Remainder -7-10* 1 1/2-4 9 1/2-12 1/
Total Net Market Borrowing 24-27 18 1/2-21 43 1/2-46 1,
Plus: Other (savings bonds, foreign nonmarketables, etc.) 1/2
Equals: Net Borrowing From the Public 44-47

•Regular and Cash Management Bills to be issued in October,
November and December

FOR RELEASE AT 4:00 P.M.

;

--

September 10, 1975

TREASURY'S 52-WEEK BILL OFFERING
The Department of the Treasury, by this public notice, invites tenders
for 364-day Treasury bills to be dated September 23, 1975, and to mature
September 21, 1976 (CUSIP No. 912793 ZS8).

The bills will be issued for cash

and in exchange for Treasury bills maturing September 23, 1975.
Tenders in the amount of $1,940 million, or thereabouts, will be accepted
from the public, which holds $934 million of the maturing bills.
Additional amounts of the bills may be issued at the average price of
accepted tenders to Government accounts and Federal Reserve Banks, for
themselves and as agents of foreign and international monetary authorities,
which hold $ 869

million of the maturing bills.

The bills will be issued on a discount basis under competitive and
noncompetitive bidding, and at maturity their face amount will be payable
without interest.

They will be issued in bearer form in denominations of

$10,000, $15,000, $50,000, $100,000, $500,000 and $1,000,000 (maturity value)
and in book-entry form to designated bidders.
Tenders will be received at Federal Reserve Banks and Branches up to
one-thirty p.m., Eastern Daylight Saving time, Wednesday, September 17, 1975.
Tenders will not be received at the Department of the Treasury, Washington.
Each tender must be for a minimum of $10,000. Tenders over $10,000 must be
in multiples of $5,000.

In the case of competitive tenders the price offered

must be expressed on the basis of 100, with not more than three decimals, e.g.,
99.925.

Fractions may not be used.

Banking institutions and dealers who make primary markets in Government
securities and report daily to the Federal Reserve Bank of New York their
positions with respect to Government securities and borrowings thereon may
submit tenders for account of customers provided the names of the customers
are set forth in such tenders.

Others will not be permitted to submit

tenders except for their own account.

Tenders will be received without

(OVER)

deposit from incorporated banks and trust companies and from responsible
and recognized dealers in investment securities.

Tenders from others must

be accompanied by payment of 2 percent of the face amount of bills applied
for, unless the tenders are accompanied by an express guaranty of payment
by an incorporated bank or trust company.
Public announcement will be made by the Department of the Treasury of
the amount and price range of accepted bids.

Those submitting competitive

tenders will be advised of the acceptance or rejection thereof.

The Secretary

of the Treasury expressly reserves the right to accept or reject any or all
tenders, in whole or in part, and his action in any such respect shall be
final.

Subject to these reservations, noncompetitive tenders for $500,000

or less without stated price from any one bidder will be accepted in full at
the average price (in three decimals) of accepted competitive bids.

Settle-

ment for accepted tenders in accordance with the bids must be made or
completed at the Federal Reserve Bank or Branch on September 23, 1975, in
cash or other immediately available funds or in a like face amount of Treasury
bills maturing
equal treatment.

September 23, 1975. Cash and exchange tenders will receive
Cash adjustments will be made for differences between the

par value of maturing bills accepted in exchange and the issue price of the
new bills.
Under Sections 454(b) and 1221(5) of the Internal Revenue Code of 1954
the amount of discount at which bills issued hereunder are sold is considered
to accrue when the bills are sold, redeemed or otherwise disposed of, and the
bills are excluded from consideration as capital assets. Accordingly, the
owner of bills (other than life insurance companies) issued hereunder must
include in his Federal income tax return, as ordinary gain or loss, the
difference between the price paid for the bills, whether on original issue
or on subsequent purchase, and the amount actually received either upon sale
or redemption at maturity during the taxable year for which the return is
made.
Department of the Treasury Circular No. 418 (current revision) and this
notice, prescribe the terms of the Treasury bills and govern the conditions
of their issue.

Copies of the circular may be obtained from any Federal

Reserve Bank or Branch.

The Treasury Department today announced that discussions
were held in London from September 3 through 9, 1975, between
representatives of the United States of America and the United
Kingdom, about the conclusion of a new treaty for the avoidance
of double taxation between the two countries.
A wide measure of agreement was reached and it is
anticipated that further talks will be held later this year in
Washington, D.C, with the object of completing a treaty this
year.

oOo

WS-379

Contact:

L. F. Potts
X8256
September 11, 1975

FOR IMMEDIATE RELEASE

TREASURY ANNOUNCES TENTATIVE
REVOCATION OF DUMPING FINDING
ON TEMPERED SHEET GLASS FROM JAPAN
Assistant Secretary of the Treasury David R. Macdonald
announced today a tentative determination to revoke a finding
of dumping in the case of tempered sheet glass from Japan under
the Antidumping Act, 1921, as amended. Notice of this decision
will appear in the Federal Register of September 12, 1975. A
finding of dumping with respect to tempered sheet glass from
Japan was published in the Federal Register of September 25,
1971.
The Federal Register notice of September 12, 1975, will
state in part the finding that the sole exporter, Asahi Glass
Company, Ltd., is no longer selling, or likely to sell, tempered
sheet glass to the United States at less than fair value within
the meaning of the Antidumping Act and that written assurances
have been received that future sales of tempered sheet glass
to the United States will not be made at less than fair value.
Imports of tempered sheet glass during 1974 were valued
at approximately $1.3 million.

oOo

REMARKS BY THE HONORABLE WILLIAM E. SIMON

3^/

SECRETARY OF THE TREASURY
DEDICATION OF THE CONSOLIDATED FEDERAL LAW ENFORCEMENT
TRAINING CENTER
6LYNC0, GEORGIA, SEPTEMBER 12, 1975
GOVERNOR BUSBEE, SENAYOR TALMADGE, SENATOR NUNN,
CONGRESSMAN GINN, DISTINGUISHED MEMBERS OF THE VISITING
CONGRESSIONAL DELEGATION, AND LADIES AND GENTLEMEN:

IT IS A GREAT PERSONAL PLEASURE TO JOIN YOU HERE TODAY
FOR THIS DEDICATION AND TO BE RECEIVED SO WARMLY.

THE

FRIENDLINESS AND HOSPITALITY OF THE PEOPLE OF GLYNN COUNTY,
THE CITY OF BRUNSWICK AND THE GOLDEN ISLE COME AS NO SURPRISE
TO ME OR TO MY WIFE, CAROL.

WE SPENT OUR HONEYMOON HERE ON

SEA ISLAND TWENTY FIVE YEARS AGO, AND IT HAS REMAINED ONE OF
OUR FAVORITE SPOTS EVER SINCE.

TODAY WE ARE GATHERED TO MARK THE OPENING OF THE NEW
FEDERAL LAW ENFORCEMENT TRAINING CENTER. SOME

3,000 STUDENTS

WILL BE TRAINED HERE THIS YEAR IN THE BASIC TECHNIQUES OF
LAW ENFORCEMENT, AND BY 1977, THE CENTER IS EXPECTED TO

TRAIN SOME 9,000 MEN AND WOMEN EVERY YEAR.

THOSE GRADUATES

WILL THEN BECOME THE FRONT-LINE OFFICERS FOR THE U.S. SECRET
SERVICE, THE U.S. MARSHALS, THE CAPITOL POLICE, THE PARK
POLICE, AND THE MANY OTHER' BRANCHES OF FEDERAL LAW ENFORCEMENT
OTHER THAN THE FBI-.

SOME OBSERVERS HAVE ALREADY BEGUN CALLING THIS CENTER
THE "WEST POINT OF LAW ENFORCEMENT" OR AS I THINK IT MIGHT BE
MORE APPROPRIATELY CALLED, THE "CLTADEL OF LAW ENFORCEMENT."
AND ALL OF US MUST SHARE THE HOPE THAT IT WILL LIVE UP TO
THOSE EXPECTATIONS. CERTAINLY, THERE HAS RARELY BEEN A TIME
WHEN OUR COUNTRY NEEDED MORE HIGHLY TRAINED AND QUALIFIED
LAW ENFORCEMENT OFFICERS THAN WE DO TODAY. AS CITIZENS WHO
WANT TO PROTECT OURSELVES AND OUR FAMILIES, NONE OF US CAN
TOLERATE THE RISING TIDE OF CRIME THAT IS ONCE AGAIN SWEEPING
ACROSS OUR LAND. AS AMERICANS WHO BELIEVE IN FREEDOM, EACH
OF US IS ALSO COMMITTED TO SAFEGUARDING THE CONSTITUTIONAL

. 3-

^

3

GUARANTEES OF THE ACCUSED. THESE ARE HIGH ASPIRATIONS — TO
PROTECT THE FREEDOMS OF LAW-ABIDING CITIZENS WHILE ALSO
PROTECTING THE RIGHTS OF THOSE WHO MAY VIOLATE THE LAW —
AND IN THE VOLATILE, COMPLEX SOCIETY IN WHICH WE LIVE,
THOSE ASP I RATIONS.CAN ONLY BE REALIZED THROUGH THE MAINTAINANCE
OF A SUPERB TEAM OF LAW ENFORCEMENT OFFICERS. THAT IS THE
GOAL WE SEEK HERE.

IF THERE CAN BE ANY DOUBT OF

THE HEAVY RESPONSIBILITIES

THAT WILL BE THRUST UPON THE GRADUATES OF THIS CENTER, YOU
NEED ONLY REMEMBER THE INCIDENT JHAT OCCURRED LAST WEEK IN
SACRAMENTO, CALIFORNIA. THE U.S. SECRET SERVICE ACTED
SWIFTLY AND EFFECTIVELY DURING THOSE FEW TENSE SECONDS, AND
WE MUST ENSURE THAT THOSE STANDARDS OF EXCELLENCE ARE CONTINUED
INTO THE FUTURE.

THE INSPIRATION AND MUCH OF THE CREDIT FOR THE CONSTRUCTION
OF THIS INSTITUTION IS OWED TO A VERY FINE CONGRESSMAN FROM

- n-

$*-

OKLAHOMA, THE HONORABLE TOM STEED. TOM FORESAW MANY YEARS
AGO THAT GREATER PROFESSIONALISM WOULD BE NEEDED IN THE
NATION'S LAW ENFORCEMENT RANKS IN ORDER TO DEAL WITH.MUSHROOM-

ING CRIME RATES. HE ALSO'RECOGNIZED THAT IF THE FRAGMENTARY
TRAINING CENTERS WHICH THEN EXISTED COULD BE COMBINED INTO
ONE FACILITY, WE WOULD PROVIDE FAR BETTER TRAINING FOR EACH
OF OUR OFFICERS. THE WHOLE, AS HE SAW IT, WOULD BE GREATER
THAN THE SUM OF ITS PARTS. FROM THIS VISION CAME THE CONCEPT
OF THIS CENTER WITH THE GOAL THAT IT BECOME A FIRST-CLASS
FACILITY WITH THE FINEST STAFF MEMBERS THAT EACH AGENCY
COULD CONTRIBUTE. TOM PURSUED THAT GOAL FOR OVER A DECADE,
AND NOW IT HAS COME TO FRUITION.

TOM WOULD BE THE FIRST TO TELL YOU THAT THE PUBLIC
WORKS COMMITTEES OF BOTH THE SENATE AND THE HOUSE ALSO
DESERVE OUR HEARTFELT APPRECIATION FOR HELPING TO FINANCE
THIS CENTER. AS SENATOR NUNN HAS MENTIONED, WE LITERALLY
WOULD NOT BE HERE TODAY BUT FOR THE INGENUITY OF THE PUBLIC

-5-

3/^

WORKS COMMITTEES. INDEED, THE CREATION OF THIS NEW FACILITY
IS ONE OF THE FINEST EXAMPLES I KNOW OF HOW MUCH CAN BE
ACHIEVED WHEN THE CONGRESSIONAL AND EXECUTIVE BRANCHES WORK
CLOSELY TOGETHER.

THE WISDOM SHOWN IN CONVERTING AN EXISTING PUBLIC
FACILITY INTO A NEW TRAINING CENTER HAS MEANT THAT THE LAW
ENFORCEMENT TRAINING CENTER COULD OPEN LONG BEFORE ANY OF US
EXPECTED. IT HAS ALSO MEANT A CONSIDERABLE SAVINGS TO THE
TAXPAYER, SOMETHING WHICH ALL OF US CAN APPRECIATE TODAY.

TODAY'S OPENING, OF COURSE, IS ONLY THE BEGINNING.
DURING THE NEXT TWO YEARS, THERE WILL BE FURTHER CONSTRUCTION,
AS A BUILDING. CONTAINING A FIREARMS RANGE IS COMPLETED AND
ADDITIONAL REMODELING AND FINISHING OCCURS IN SEVERAL OF THE
EXISTING STRUCTURES. IT PROMISES TO BE ONE OF THE MOST
COMPREHENSIVE TRAINING CENTERS IN LAW ENFORCEMENT HISTORY.

-6-

^

FOR THOSE OF us IN THE TREASURY DEPARTMENT WHO HAVE
LONG LOOKED FORWARD TO THIS MOMENT, I WANT TO SAY HERE TODAY
THAT WE ARE EXTREMELY GRATEFUL TO THE MANY FINE PEOPLE WHO
HAVE NURSED ARID GUIDED THIS PROJECT TO SUCH A SUCCESSFUL
OPENING — TO THE MEMBERS OF CONGRESS I HAVE ALREADY MENTIONED,
TO OTHER MEMBERS OF CONGRESS WHO ARE WITH US ON THIS PLATFORM
AND HAVE WORKED HARD ON THIS PROJECT, AND TO THE MANY FINE
RESIDENTS OF THIS AREA WHO WILL BECOME OUR NEW NEIGHBORS,
WE ARE DELIGHTED TO MAKE GEORGIA OUR NEW HOME.

ONE 'OF GEORGIA'S FINEST CONTRIBUTIONS TO THE UNITED
STATES AND ONE OF MY MOST DISTINGUISHED FRIENDS, THE HONORABLE
HERMAN TALMADGE, HAS GIVEN A SPECIAL GIFT TO THE CENTER:
A U.S. FLAG THAT HAS FLOWN OVER OUR NATIONAL CAPITOL IN
WASHINGTON. ON BEHALF OF SENATOR TALMADGE, I NOW PRESENT
THAT FLAG TO THE ACTING DIRECTOR OF THE CE;;TER, BOB EFTELAMD.

MR. EFTELAND, I NOW DECLARE THAT THIS CONSOLIDATED
LAW ENFORCEMENT TRAINING CENTER IS IN COMMISSION AS AN AGENCY
OF THE UNITED "STATES TREASURY DEPARTMENT, DEDICATED TO THE
PROTECTION OF FREEDOM AND THE PURSUIT OF JUSTICE.

DepartmentoftheTREASURY

OFFICE OF REVENUE SHARING
WASHINGTON, D.C. 20226

TELEPHONE 634-5248

FOR IMMEDIATE RELEASE
FRIDAY, SEPTEMBER 12, 1975 .
FOR INFORMATION CALL: PRISCILLA R. CRANE (202) 634-5248
Over 5,000 governments in the United States have been
notified by the U. S. Treasury Department's Office of Revenue
Sharing that their October revenue sharing checks cannot be
mailed unless two required report forms are returned to the
revenue sharing office by September 19th.
The 5,673 places to which reminders have been sent range
in size from San Bernardino County, California (which should
receive $11,779,378) to the town of Silver Street, South Carolina
($260). A total of $251,890,952 could be delayed.
Revenue sharing law requires that two one-page forms be
published locally and filed with the Office of Revenue Sharing
for each period of time in which funds are distributed. One of
these is a Planned Use Report on which each recipient unit of
government indicates its plans for use of funds it expects to
receive for the coming period. The other is an Actual Use Report,
due after June 30 of each year, on which each government reports
its expenditures and other obligations of funds during the fiscal
year just ended.
"Some governments to which we have sent notices have
returned one report and not the other. Both reports are required
before the money can be released," John K. Parker, Acting Director

of the Office of Revenue Sharing stated today.

"Fortunately,

fewer places are delinquent in returning the forms this year
than was the case last year. We hope that most of the late
filers1 reports will be received in time for them to receive
i

their October checks on schedule," he added.
The Planned Use Report which is required to be filed before
the October 1975 checks can be mailed was sent to all of the
nearly 39,000 revenue sharing recipients in April of this year.
It was due to be returned in June. The latest Actual Use Report
was mailed to all eligible governments in June and was due in
the Office of Revenue Sharing by September 1, 1975.
The October checks represent the first quarterly payment of
Entitlement Period Six (July 1, 1975 to June 30, 1976) revenue
sharing funds. Shared revenues are distributed in periods specified by law. The money for each period is paid on a quarterly
basis: in October, January, April and July.
Funds may not be released to any government that has not
filed properly-completed reports. The money is released with the
next regularly-scheduled payment after the reports are received.
The State and Local Fiscal Assistance Act of 1972 which
established the general revenue sharing program, authorizes the
distribution of $30.2 billion in five years, from 1972 through
December 1976. All units of general-purpose government in the
United States are eligible to receive the funds.

Department of theJREASURY
INGT0N,D.C. 20220

ELEPHONE 964-2041

FOR IMMEDIATE RELEASE

September 12, 1975

RESULTS OF TREASURY'S WEEKLY BILL AUCTIONS
Tenders for $2.7 billion of 13-week Treasury bills and for $2.9 billion
of 26-week Treasury bills, both series to be issued on September 18, 1975,
were opened at the Federal Reserve Banks today. The details are as follows:
26-week bills
maturing March 18, 1976

RANGE OF ACCEPTED
13-week bills
COMPETITIVE BIDS: maturing December 18, 1975

High
Low
Average

Price

Discount
Rate

Investment
Rate 1/

98.387 a/
98.367
98.371

6.381%
6.460%
6.444%

6.59%
6.68%
6.66%

Price
96.552
96.498
96.511

Discount
Rate

Investv ent
Rate 1/

6.820%
6.927%
6.901%

7.18%
7.30%
7.27%

a/ Excepting 1 tender of $4,155,000
Tenders at the low price for the 13-week bills were allotted 57%.
Tenders at the low price for the 26-week bills were allotted 73%.
TOTAL TENDERS RECEIVED AND ACCEPTED BY FEDERAL RESERVE DISTRICTS:
District

Received

Boston
$
43,455,000
New York
3 ,894,185,000
56,570,000
Philadelphia
Cleveland
161,365,000
70,585,000
Richmond
60,755,000
Atlanta
284,170,000
Chicago
49,550,000
St. Louis
16,715,000
Minneapolis
63,865,000
Kansas City
87,610,000
Dallas
San Francisco 244,345,000
TOTALIS,033,170,000

Received

Accepted
$
29,910,000
2,113,475,000
28,140,000
36,365,000
63,155,000
56,755,000
113,025,000
31,850,000
11,855,000
61,535,000
26,030,000
129,145,000

$

25,255,000
3,561,085,000
9,070,000
135,030,000
39,215,000
43,750,000
283,940,000
33,780,000
12,840,000
30,655,000
27,070,000
247,345,000

$2,701,240,000 b/$4,449,035,000

'__

Accepted
$
15,255,000
2,364,765,000
9,070,000
34,330,000
39,215,000
40,750,000
127,940,000
26,510,000
12,840,000
26,155,000
24,800,000
178,805,000
$2,900,435,000^/

b/Includes $405,905,000 noncompetitive tenders from the public.
c/lncludes $ 197,115,000 noncompetitive tenders from the public.
1/ Equivalent coupon-issue yield.

Contact:

Richard Self
x8256

FOR IMMEDIATE RELEASE September 15, 1975
TREASURY DEPARTMENT ANNOUNCES
COUNTERVAILING DUTY INVESTIGATION
ON IMPORTED SCREWS FROM ITALY
Assistant Secretary of the Treasury David R. Macdonald
announced today the initiation of a countervailing duty investigation against imported screws from Italy. A "Notice
of Receipt of Countervailing Duty Petition and Initiation of
Investigation" will be published in the Federal Register of
September 16, 1975.
Under the U.S. Countervailing Duty Law (19 U.S.C. 1303)
the Secretary of the Treasury is required to assess an
additional customs' duty which is equal to the amount of
the "bounty or grant" that has been found to be paid or
bestowed on imported merchandise. The Law requires that a
final decision as to the existence or nonexistence of a
bounty or grant be issued by no later than 12 months upon
the date of receipt of the countervailing duty petition.
A preliminary determination to this effect is required under
the Law by no later than 6 months after the date of the
receipt of the petition.
The investigation of imports of screws from Italy
stems from a petition received on behalf of domestic
industry that this merchandise receives "bounties or grants"
in the form of rebates under Italian Law 639. The Treasury
has until February 11, 1976 to issue a preliminary determination as to whether a bounty or grant exists. A final
determination must be rendered by no later than August 11,
1976.
During calendar year 1974 imports of screws from Italy
totaled approximately $1.9 million.
*

*

*

*

FOR RELEASE UPON DELIVERY
$

&

ADDRESS BY THE HONORABLE WILLIAM Et SIMON
SECRETARY OF THE TREASURY
BEFORE THE 197 5 SOUTHERN GOVERNORS CONFERENCE
WALT DISNEY WORLD, FLORIDA, SEPTEMBER 15, 1975
11:00 A.M. EDT
It's certainly good to be here today among so many old
friends. One of the greatest pleasures I have had in public
life is to come to know and work with the governors in this
assembly, and I can tell you there is no single group of
gentlemen in this country whose company I more greatly enjoy
or respect. Some of the old hands in Washington are beginning
to tell me that the combination of Southern Governors and
Bill Simon goes together almost as well as bourbon and
branch water.
Your very fine host, Governor Askew, suggested that I
might talk with you today about the nation's economic
prospects — present and future. I know that Senator
Mansfield has already covered some of this ground, but
it may be helpful to see it again from a somewhat different
perspective.
In my view, we have now reached one of the most delicate
periods in the process of recovery. As the economy begins
its upward climb, it is bound to produce a mixture of good
and bad news. Most of the statistics on economic growth
will point upwards, but a few will continue to cause doubts.
As reflected by the stock market and recent consumer surveys,
some observers are already jittery, worrying that the recovery
will never get off the ground or that we may crash in the
jagged peaks of inflation. Inevitably, there will be growing
political pressures -- especially as Washington is seized
with election fever -- to adopt much more expansionary
policies.
Washington is not ideally equipped to deal with these
pressures. Time and again in the past, when the choice
had to be made between sound economic policies and popular
political ones, we have succumbed to the wrong instincts.
Both Democrats and Republicans have made the same mistakes.
And the result has been a sad record of stop-and-go policies
that have only accentuated the forces of expansion and
WS-380
contraction and, in fact, must be held accountable for a
significant amount of our current economic troubles.

In view of that record and considering the vigor of the
recovery that is now underway, I would suggest that this is
not a time for "politics as usual" — not for fancy, headlinecatching action in Washington — but for a calm, steady hand
on the tiller. We must not be rigid in our approach. In
coming weeks, for instance, we must decide whether to extend
the recent tax cut and it is important that we maintain an
open mind on that issue. But contrary to past practice, I would
hope that our answer would be dictated more by economic than
by political considerations.
Earlier this week I asked one of the top economists in
the government about his views on the tax question, and he
said, "I've been in the government so long that I'm not sure
whether my opinions are based on economics or politics."
While that surely happens to the best, it is a tendency we
must learn to resist.
The recovery that we've experienced in the last several
months does, I believe, provide solid grounds for encouragement.
It came earlier and it has been stronger than most forecasters
predicted, and I think that it will continue to be stronger
and that the unemployment rate will come down more rapidly
than many now think. Let's look for a moment at the dimensions
of the recovery:
— 1.5 million jobs have been added to the work force
since March.
-- The unemployment rate has held steady at 8.4% for
two months in a row, significantly below the 9.2% peak
reached in May.
-- After sliding downwards for five consecutive quarters,
including a decline of 11.4% on an annualized basis during
the first quarter of this year, the Gross National Product
has reversed course, rising at a 1.6% annual rate in the
second quarter.
-- The composite of 12 leading economic indicators has
now moved up strongly for five months in a row.
-- Inventories have been sharply reduced, opening the
way to rising production levels.
-- And exports are up considerably.

- 3Moreover, the Government is supplying a great deal more
stimulus to the economy than most people realize. You will
often read that the $44 billion deficit incurred by the
Federal Government in fiscal year ]975 resulted from a loss
of revenue caused by the recession. That is partially true.
But it is also true that Federal outlays during that year
were $56 billion higher than the year before — a 2] percent
increase and the biggest single percentage increase in more
than two decades. Monetary policy has also been stimulative
as the total of currency and bank demand deposits — the M-^
money supply, as it is called by economists — has increased
at an annualized rate of over 8-1/2% the first half of this
year.
A compilation of 21 well-known, private economic models
show that 10 of them now predict that real growth in the
third quarter will be over 5 percent, and 10 of them show it
will be in excess of 6 percent. Similar growth patterns are
foreseen for the fourth quarter and into 1976. Within the
government itself, we now anticipate a moderate to strong
expansion of real output extending through the second half
of the year into 1976. And if we act prudently, we believe
that the recovery will be both sustained and vigorous
beyond that time.
I hasten to re-emphasize the need for prudence, because
there are certainly a number of shoals ahead and we must be
careful to avoid them.
The most obvious is the renewed threat of inflation.
The inflationary surge that we've experienced in the last
few weeks is directly related to increases in energy and
ood costs and we are hopeful that it will be only a bubble,
quickly passing out of the system. But it is also a grim
reminder that even the most severe recession in more than a
generation has not fully defeated the forces of inflation.
Indeed, the rate of increase in the Consumer Price Index so
far this year has averaged ™ore than 6-7%, more than triple the
rate that I would consider acceptable over the long-run.
And the last WPI figures also brought the first significant
increase in industrial prices.
A prolonged seige of new, double-digit inflation would
almost certainly wreck our hopes for a durable economic
recovery. We must never forget that excessive inflation was
the basic cause of the recession and that it remains our
most fundamental economic problem. Administration critics
argue that our concern with inflation reflects an insensitivity
toward jobs and the poor: to the contrary, it is only by

- 4conquering inflation that we are going to achieve the longrange growth that is essential for the creation of new jobs.
We do not have the luxury of choosing between jobs and
inflation: experience teaches us that we must pursue both
of these goals simultaneously. As we continue to stimulate
the economy, then, it is essential that we also take extreme
care in avoiding policy excesses which would whip up the
inflationary forces that still plague our economy. For
policy purposes, this means three things:
(1) We must maintain a stout defense against continuing
efforts to bust the Federal budget. Earlier this year the
country applauded as the President succeeded in vetoing
several bills that would have cost the taxpayers an additional
$6 billion before 1977. It has not been widely noticed,
however, that since that time the Congress has begun to make
serious inroads on the President's deficit ceiling of $60
billion. In fact, there is now a considerable question of
whether the Congress can contain itself within its own
target of a $68.8 billion deficit. The senate keeps a
scorecard on Congressional budget activities of the Congress,
and in their most recent report they conceded that the
Congress could overshoot its own target by almost $5 billion.
If the Congress can do no better job in disciplining itself
under the new budgetary process, then all of us are going to
have to start looking for some better solutions.
(2) We must press forward in the effort to adopt a
comprehensive national energy policy -- a policy that will
generate more energy supplies without generating significantly
higher degrees of inflation. This Administration has had
such a policy before the Congress for nearly nine months
now. We have offered more compromises to the Congress than
I care to remember, and we stand ready to compromise now.
But at some point the Congress must pull itself together and
join us in this effort, or like Samson, we're going to give
it all away to those Delilahs of the Middle East.
The President has indicated his willingness to work
with the Congress to enact a decontrol plan for domestic
oil, but we are fully prepared to go forward without controls if

- 5-

3rd

no Congressional action is soon forthcoming. At the same
time, we want to work with the Congress, with the Governors,
and with the private sector in arriving at better answers to
our natural gas problem. And let me add that one of the
best forums in the country for finding solutions to the
natural gas problem is right here: several of you represent
states that could be the hardest hit by natural gas shortages
this winter while others of you represent the nation's
leading producers.
We ask you to join with us in proceeding down two
different legislative tracks regarding natural gas. First,
we must seek legislation that would help to ease the immediate
shortages . As you know, this country has allowed the
natural gas issue to drift so long that it will not be
possible to end all shortages this winter, but we must do
what we can to alleviate them.
Toward that end, the President
sent a four-part bill to the Congress last week, and I
commend it to your attention. The second track — and one
that must not be lost in the debates over a short-term
answer — is to achieve the long-term goal of total deregulation.
We are firmly for deregulation; many of you support deregulation;
now we must persuade the country and the Congress that it is
an idea whose time has come.
(3) We must draw a hard line against price increases
by the OPEC bloc. The prices they are charging now cannot
be justified on either economic or financial grounds; they
are politically determined and, truth to tell, they amount
to political blackmail. As I have stressed on other occasions,
I believe that another major increase in their prices this
fall would seriously jeopardize the balance upon which
worldwide recovery now depends. Two weeks ago, I had a
chance to talk with the OPEC finance ministers, and I was
encouraged by a sense of moderation and realism that most of
them displayed. But the question of another increase is not
yet resolved; until it is, the United States must leave no
doubt about its views.
The problems of inflation, then, arise in many different
ways -- in government spending practices, in questions of
domestic energy policy, and in international oil prices -and we must work on all of these fronts at the same time.
Still another immediate concern with regard to the
recovery, and one that is related to inflation, has been the
pattern of rising interest rates. More than six months ago,
when we began warning that private borrowers might be

crowded out of the market by the government, we were hotly
roasted by many of the apologists for big government spending.
Their models, they said, showed that interest rates would
decline and private borrowers would be able to obtain ample
funds. But the fact is that the "crowding out" that concerned
us has already started. Furthermore, there has been an
accentuation of the "flight to quality" that we have seen
in the financial markets in the recent past. Funds are
still available to high quality borrowers, but many lower
quality borrowers are finding that they no longer have
access to the market at prices they can afford. Looking
down the road, a continuation of this trend would spell very
serious trouble, for the future growth of the economy. For
now, it is imperative that the Federal Government not act to increai
inflationary expectations and thus drive interest rates
higher than they are already.
A third area of immediate concern for all of us must be
consumer confidence. While I do not place full faith and
credit in the results of public polls, they do bear watching
and recently they have shown a sag in public expectations.
One polling official visited some officials in the Treasury
Department last week and said that most of the current
concern has been fanned by the reappearance of inflation. I
need not remind you that a precipitous drop in consumer
sentiments, touched off by the wave of double-digit inflation,
was a major element in bringing the last recession. It
would be tragic to let that happen again. Instead, it is
clear to me that we must follow the same policy prescriptions
that I have suggested earlier: strong, steady policies that
support the forces of recovery but carefully avoid the excesses thai
would rekindle inflation.
I could continue at some length on current problems and
prospects, but let me turn for a moment to longer-range and
even more fundamental concerns. I have, as you can see, a
high degree of confidence in the immediate future. I am,
however, increasingly troubled by what may lie a few years
beyond the horizon. I do not believe that our economic nor
our financial mechanisms can withstand a continual battering
for the next five or ten years without suffering rather
severe consequences; and let there be no doubt: serious
damage to our economic system would most assuredly be a body
blow to our political system as well. I spoke with you
about my concerns at the National Governors Conference
earlier this year, but let me re-emphasize a few of them.

- 7-

3&

X £ J w CI
;-., ,1 -V

--Our economic and financial institutions, I believe,
cannot tolerate a prolonged period of inflation in the
double-digit or high single-digit range:
K * ~~-.aonY cfnnot create the 11 million new jobs we need
before 1980 unless far more of our resources are pumped into
new capital investments.
^ p
.ln . ~~Jhe? cannot survive higher and higher degrees of
llliquidity.
*
— They cannot grow and prosper if there is a continual
depression in profits.
— They cannot operate efficiently and imaginatively if
they are strangled in a growing web of government regula3
tions .
-- And they cannot survive the political pressures of a
restive society unless they regain public esteem and attract
many of the brightest and most able of our young people.
None of these trends will be easy to reverse. Their
^ U S u S v ? f e <?eep-seated and have built up over a long period.
The habit of excessive governmental spending, which lies at
the root of so many of our difficulties, extends back for
years: we have had ]4 Federal deficits in the last ]5
years, and 40 in the last 48 years. The sins of a decade or
more will not be forgiven by a single day or even by a
single year of penance.

$1
The critical point is that we get started — that we
begin working to slow and then reverse the patterns. And we
should be acting now, not two or three years hence when the
problems could be significantly bigger and more difficult to
master. If we wait too long, the solutions that will be
forced upon us will make a mockery of the traditions that we
hold dear in this country. The first rumblings for new wage
and price controls can already be heard in Washington.
Indeed, the wolf of Big Government is nearing our door, and
it will not be driven off unless we act soon.
Late in July, I went before the House Ways and Means
Committee to propose some rather fundamental changes in our
tax code that would encourage a higher rate of capital
formation —
or as the President aptly calls it, a new
program of job formation. It was obvious that we would meet
with stiff opposition both in the Congress and in the press,
and we knew the chances were slim that Chairman Ullman and
his committee would act on our proposal before the end of
the year. But it was important, we thought, to generate a
more serious public debate about capital formation and to
begin laying the groundwork for the changes that are so
clearly needed in the future.
This is the posture that I believe must be taken by all
of us here: to be forthright about the crucial choices that
our nation must make and to be aggressive in pursuing our
desired ends. There can be no question about how far this
country has wandered from its moorings. Economic freedom is
now on the line; political freedom is on the line; and personal
freedom is on the line. And if people who believe in those
freedoms aren't willing to stand up and fight for them, who
will?
As national leaders, as great patriots, and as the
chief executives of a region that has overcome some of the
most troublesome problems in our country's history, you
represent one of the best hopes of America. I deeply believe
in you and in the contribution that you can make. Through
our personal contacts and through the office that we have
set up in the Treasury to maintain a liaison with you -- an
office that I am happy to see many of you using — I am
committed to working closely with each of you. Great decisions
lie before this nation -- decisions that could shape the
lives of our children and our children's children. Let each
of us act as a trustee of their future.
Thank you.
# # # # # # # #

CONTACT: GEORGE G. ROSS
202-964-5985
Sept 16 1975

FOR IMMEDIATE RELEASE

THE UNITED STATES AND THE REPUBLIC OF TUNISIA
HOLD DISCUSSIONS ON AN INCOME TAX TREATY
The Treasury Department today announced that representatives of the United States and the Republic of Tunisia held
preliminary discussions in Washington September 2 through
September 4 to consider entering into an income tax treaty.
Representatives of the two countries plan to meet in Tunis
in the Spring of 1976 to begin formal discussions of a proposed bilateral income tax treaty.
At present there is no income tax convention between the
two countries.
The proposed treaty is intended to prevent double taxation
and to facilitate trade and investment between the two countries.
"It will be concerned with the tax treatment of income of individuals and companies from business, investment, and personal
services, and the procedures for administering the provisions
3
of the treaty.
The "model" income tax treaty developed by the Organization
=efor Economic Cooperation and Development will be taken into
'"account along with recent U.S. treaties with other countries,
such as the treaty with Norway, which entered into force in 1972
and the treaties with Trinidad and Tobago and Japan, which
entered into force in 1971 and 1972, respectively.
Persons wishing to make comments and suggestions about the
discussion to be held with representatives of Tunisia should
i submit their views in writing to Charles M. Walker, Assistant
Secretary of the Treasury, U.S. Treasury Department, Washington,
O.C. 20220.
This announcement appears in the Federal Register of
September 16, 1975.
#

S-381

# # #

I

department of theJREASURY
NGTON, D.C. 20220

FOR RELEASE AT 4:00 P.M.

September 16, 1975

TREASURY'S WEEKLY BILL OFFERING
The Department of the Treasury, b / this public notice, invites tenders for
y

two series of Treasury bills to the aggregate amount of $5,500,000,000 >
thereabouts, to be issued

or

September 25, 1975, as follows:

92-day bills (to maturity date) in the amount of $2,700,000,000* or
thereabouts, representing an additional amount of bills dated June 26, 1975,
and to mature December 26, 1975

(CUSIP No. 912793 YD2 ), originally issued in

the amount of $2,301,675,000, the additional and original bills to be freely
interchangeable.
182-day bills, for $2,800,000,000, or thereabouts, to be dated September 25, 1975,
and to mature March 25, 1976

(CUSIP No. 912793 YZ3 ) .

The bills will be issued for cash and in exchange for Treasury bills maturing
September 25, 1975, outstanding in the amount of $5,502,295,000, of which
Government accounts and Federal Reserve Banks, for themselves and as agents of
foreign and international monetary authorities, presently hold $1,818,270,000.
These accounts may exchange bills they hold for the bills now being offered at
the average prices of accepted tenders.
The bills will be issued on a discount basis under competitive and noncompetitive bidding, and at maturity their face amount will be payable without
interest.

They will be issued in bearer form in denominations of $10,000,

$15,000, $50,000, $100,000, $500,000 and $1,000,000 (maturity value), and in
book-entry form to designated bidders.
Tenders will be received at Federal Reserve Banks and Branches up to
one-thirty p.m., Eastern Daylight Saving time, Monday, September 22, 1975.
Tenders will not be received at the Department of the Treasury, Washington.
Each tender must be for a minimum of $10,000.
multiples of $5,000.

Tenders over $10,000 must be in

In the case of competitive tenders the price offered must

be expressed on the basis of 100, with not more than three decimals, e.g., 99.925.
Fractions may not be used.
Banking institutions and dealers who make primary markets in Government

(OVER)

foe DepartmentoftheTREASURY
TELEPHONE 964-204

HINGTON,DX. 20220

FOR IMMEDIATE RELEASE

September 17, 1975

RESULTS OF TREASURY'S 52-WEEK BILL AUCTION
Tenders for $1,940,000,000 of 52-week Treasury bills to be issued to
the public, to be dated September 23, 1975, a n d to mature September 21, 1976,
were opened at the Federal Reserve Banks today. The details are as follows:
RANGE OF ACCEPTED COMPETITIVE BIDS: (Excepting 3 tenders totaling $3,000,000)

Price
High
Low
Average -

92.611
92.568
92.580

Discount Rate
7.308%
7.350%
7.338%

Investment Rate
(Equivalent Coupon-Issue Yield)
7.87%
7.92%
7.90%

TOTAL TENDERS FROM THE PUBLIC RECEIVED AND ACCEPTED BY FEDERAL RESERVE DISTRICTS
District

Received

Accepted

Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco

$ 102,985,000
3,558,705,000
34,900,000
297,030,000
84,195,000
22,180,000
432,820,000
45,235,000
99,870,000
42,200,000
35,985,000
459,065,000

$
50,475,000
1,257,720,000
33,900,000
137,360,000
41,195,000
13,805,000
134,950,000
19,235,000
51,870,000
26,180,000
8,585,000
164,895,000

TOTAL

$5,215,170,000

$1,940,170,000

The $1,940,170,000 of accepted tenders includes 33% of the amount of
bills bid for at the low price and $184,420,000 of noncompetitive tenders
from the public accepted at the average price.
In addition, $918,035,000 of tenders were accepted at the average price
from Government accounts and from Federal Reserve Banks for themselves and as
agents of foreign and international monetary authorities.

Statement of the Honorable William E. Simon
Secretary of the Treasury
Before the Subcommittee on International
Trade, Investment and Monetary Policy
of the Committee on Banking, Currency and Housing
House of Representatives
September 18, 1975, 10:00 A.M., 2128 RHOB
Mr. Chairman and members of the Subcommittee, I am
pleased to appear on behalf of the Administration to urge
that you favorably report H.R. 8175, authorizing U.S.
participation in the Financial Support Fund to be established
in association with the Organization for Economic Cooperation
and Development.
During the past two years, the international economy
has experienced a series of severe shocks arising from multifold oil price increases and from rampant world-wide inflation
followed by a steep economic downturn. Traditionally international
payments patterns have undergone the sharpest and most abrupt
shifts the world has seen in the post-war period. Within
months of the oil price increase, developed nations as a
group, accustomed to exporting capital and transfering real
resources to the developing world, were experiencing large trade
and current account deficits with the resultant need for
external borrowing. While the larger, stronger countries
greatly improved their position in the early part of this
year, the gains were temporary and, for most, deficits are
again in prospect. Many non-oil exporting developing countries,
already faced with heavy capital requirements and debt burdens,
are seeing their development programs endangered by the need
to finance higher oil import costs. The reflection of these
changes is the emergence of a relatively few oil exporting
countries as major international creditors and investors.
Their large collective financial surplus poses potentially
major financing problems in the period immediately ahead.
The Support Fund represents an urgent and necessary
response to the financial and economic problems posed by
massive increases in the price of oil. It will provide an
WS-382
essential element of financial cooperation to complement
cooperation
in economic
and energy
on the part
of
the major industrial
nations.
And policy
it is adapted
to the

p

- 2-

nature of the immediate financing problems, in that it
provides contingency insurance against a threat which
we hope will not materialize but which nevertheless is
real and serious. The participation of the United States
in the Support Fund will underline our commitment to a
cooperative international economic order. I am convinced
that the establishment of this Fund is in the best interest
of the United States, and that it warrants the strong and
unified support of the United States Government.
Basic Principles of the Support Fund Proposals
The Agreement to establish the Support Fund originated
in parallel proposals developed by the United States and by
the Secretary General of the OECD. The Administration's
decision to propose a Financial Support Fund, and the bill
before the Subcommittee today, reflect our belief that the
major industrial oil consuming countries must join a
cooperative response to their common economic and financial
problems.
The proposals for a Financial Support Fund have their
roots in intense worldwide concern that the oil importing
world would not be able to manage the financial and economic
consequences of the oil price increases. To date, the
oil consuming countries have been able to do so. But
with today's extremely high oil prices, there is a continuing
and serious danger that a country could be moved to adopt
inappropriate policies by the unavailabilityof financing
on reasonable terms --or even out of concern that financing
would not be available in the future -- and that other
countries would respond in kind to protect their own positions.
We are fortunate that widespread resort to restrictive
and aggressive practices, such as restrictions on trade and
investment, has been avoided thus far. With certain exceptions,
oil importing countries have refrained from restrictive
controls and have managed their affairs in a way that has
not shifted great burdens on to others -- in part because
the more flexible exchange rate arrangements now in place
have allowed for greater adaptability to changing international
circumstances, in part because capital markets and existing
financing arrangements have worked well in facilitating the
flow of credit to those in need, and in part because of
the temporarily reduced import demand resulting from the
world-wide recession.

- 3 -

w

We cannot expect that this will continue to be the
case. Economic recovery will stimulate import demand.
The disruption and imbalances caused by the oil price
increases remain serious. Countries may in some cases be
approaching the limits of prudent use of their reserves
or of existing sources of credit, and there is no certainty
that financing will remain available to individual countries
in adequate amounts on reasonable terms. Our ability to
maintain an open and liberal trade and payments system is
not assured.
For this reason we feel that a supplemental official
financing arrangement is required at this time -- a particular
kind of financing arrangement. We are opposed to the suggestions
which have been put forward for a more or less open-ended
official financing facility, utilizing special incentives to
attract the oil exporters' funds, and displacing private
markets and other existing channels. We favor a different
concept, and the proposed Support Fund is based on a different
set of principles, as follows:
First, we do not want a permanent official financing
mechanism. The oil financing problem we foresee is large in
magnitude but limited in duration. The buildup of OPEC's
financial claims on the rest of the world will taper off -and eventually end - - a s the world's efforts to conserve
energy and to develop alternative supplies reduce the costs
of oil imports, and as the oil exporting countries rapidly
increase their own imports to meet development needs. Our
assessment is that the largest annual imbalances between the
oil importing and oil exporting country groups have already
occurred, and that the imbalances will diminish and disappear
altogether by the end of this decade. The OPEC surplus of
$60 billion last year is expected to fall to around the $40
billion range this year. The real effects of the oil price
increase -- the economie dislocations and forced adjustments,
the transfers of real resources to the oil exporting countries
as they utilize their financial claims -- will persist.
But the financing problem is transitional, temporary, and
if we act with foresight, manageable.
As a permanent body, the International Monetary Fund
(IMF) should and will continue to serve as the central
source of multilateral official payments financing for a
well-functioning world economy. For the transitory,
though potentially large, financing demand we foresee in the

- 4period immediately ahead, it is neither desirable to create
a permanent new mechanism, nor to graft on to the IMF's
permanent liquidity structure the capacity to meet such a
demand. Thus, the Financial Support Fund is temporary.
It will cease new loan operations after two years by which
time the period of potential exceptional need should
have passed.
Second, we believe that any new official arrangement
should not displace or preempt existing private or official
financing channels, and should come into play only in the
event alternative financing channels fail to meet the need.
Existing financial arrangements, private and official, are
working well and adapting well to the demands placed on them.
We believe that they will continue to operate well in the
future. And by providing confidence in the underpinnings
of the system as a whole, the existence of the Support Fund
will strengthen the operations of the private markets. The
Financial Support Fund is expressly designed as an insurance
mechanism, a supplemental "safety net," that will be activated
only' in the event alternative sources of financing prove
inadequate, and only after a potential borrower has made the
fullest appropriate use of alternative sources of financing
available.
Third, we believe that any new financing arrangement
must provide discipline as well as insurance. It must
address the sources of countries' economic problems -energy, economic management -- not just the financial symptoms.
A fundamental requirement for participation in the Support Fund
is a commitment to cooperation in energy and economic policy.
Any loans extended by the Financial Support Fund will carry
specific policy conditions, related both to a borrower's
general e onomic policy and its energy policy. Before
receiving a loan, a country must satisfy a large majority
of the Governing Committee not only that it has a genuine
need for funds and has made appropriate use of other sources
of financing, but also that it has in place measures adequate
to redress its problems. Selection of the OECD as the
organizational framework for the Support Fund provides a
parallel with the use of the OECD as the framework for the
International Energy Agency.
Fourth, we believe any new financial arrangements should
avoid offering the oil exporters special financial or economicincentives to invest their funds in the markets of the
participating countries. Such incentives are not necessary

and would serve only to increase the effective cost of oil
to the oil importing world. The oil exporters already have
a strong incentive to place the bulk of their financial
surpluses in the capital markets of the major countries of the
OECD -- there is little practical alternative -- and markets in
the recipient countries in most cases prove to be capable
of "reshuffling" the funds among borrowers if distributional
problems do arise.
Finally, we believe that any new financial arrangement
established- to protect against a common danger must provide
for full and equitable sharing of risks. The Financial Support
Fund has elaborate provisions to assure that all risk is
shared in proportion to countries'agreed quotas.
In summary, the principles on which the Support Fund
is based are appropriate to the international economic
situation and needs in the wake of the oil price increases:
It is temporary, not a permanent new piece of
international financial machinery;
It is an insurance mechanism which will be used
only in event of demonstrated need, not a competitor to
private markets;
It provides discipline. It addresses nations'
real economic problems, not financial symptoms, and requires
appropriate policies -- in both the energy and general economic
ares -- to deal with their real problems.
It is based on cooperation among the major oil
importing countries, and does not depend on the agreement
or active assistance of the oil exporting nations. It thus
allows the oil importing nations to pursue cooperation in
energy without excessive financial dependence on the oil
exporting countries.
It is a cooperative response to mutual problems
of the oil importing nations. It recognizes that the dangers
faces are faced by all, and incorporates an equitable sharing
of risk as an integral part of its operations.
U.S. Participation in the Operations of the Fund
The Support Fund will consist of national commitments
totaling 20 billion special drawing rights, equivalent to
approximately $24 billion at present exchange rates, to

backstop financing needs. Each member will have a quota
in the Support Fund that will determine:
Its share in financing loans made by the Fund;
Its share in risks on loans made by the Fund;
Its voting rights (each member has a number of
votes proportional to its quota)
Its maximum financial liability to the Fund; and
Its access to the resources of the Fund.
The proposed U.S. quota is SDR 5,560 million, or
approximately $6.6 billion at the present SRD-dollar rate.
The U.S. quota represents 27.8 percent of total quotas, which
are apportioned on the basis of participants' relative weights
on world GNP and trade.
All countries' financial rights and obligations with
respect to the Support Fund will be denominated in the Special
Drawing Right of the IMF. A common denominator is essential
to assure that countries' relative contributions to the
Support Fund do not change as a result of changes in exchange
rates, and to assure that the fundamental risk sharing
objectives of the Support Fund are met. The SDR, valued
in terms of a collection of major currencies, was chosen
as the common denominator because it is a "neutral"
accounting unit, under which all participants accept some
of the exchange risk inevitable in international financial
operations. The SDR does not give special treatment to any
currency or country, as would be the case if an individual
national currency were used, and thus represents an equitable
exchange risk sharing arrangement.
Because the Support Fund operates as an insurance
mechanism, resources will not be required until a specific
need arises. Commitments would be on a stand-by basis -that is, there would be no "paid-in" capital, but an
undertaking on the part of each member to participate in
financing a loan which the Support Fund decides to make
to a member in need.
Loans by the Support Fund will be financed in either
of two ways: through borrowings by the Support Fund on
world financial markets, on the basis of the collective

37/
guarantee of all members; or by "individual commitments" of
members. The technique to be used for a given loan will be
determined by the Governing Committee of the Support Fund
at the time of the decision to make the loan. In each case,
calls on members for financing will be in proportion to
their quota shares of the loan to be financed.
In the case of individual commitments, each country
will have the option of extending a loan directly to the
Support Fund to cover its share of the financing, or
providing an individual guarantee to allow borrowing by the
Support Fund in the amount of that member's share. We
expect to utilize the second, or guarantee, option for
the U.S. share of any individual commitments approved
by the Support Fund, and we believe that this is also the
intent of most other participants.
The proposed legislation thus provides for the United
States to meet its financial commitments to the Support Fund
through the issuance of guarantees -- individual or collective.
The United States would actually have to transfer funds under
these guarantees only if a member that has borrowed from the
Support Fund failed to make a payment on the corresponding
loan.
In the unlikely event the U.S. should decide to extend
a direct loan to the Support Fund -- for example, if the
markets were very unsettled or if there were an immediate
crisis need for funds -- the United States could make a
direct loan from the resources of the Exchange Stabilization
Fund (ESF) pursuant to existing authority. Thus no further
authorization need be included in the proposed legislation.
The resources of the ESF could also be used to meet the
obligation of the United States on its individual or collective
guarantees to make immediate transfers of amounts due.
This bill authorizes appropriations to replenish the
resources of the ESF if used for transfers to the Support
Fund for either of these purposes. Appropriations would be
sought if needed and as needed. Since we doubt that it
will ever be necessary to use ESF resources for these purposes,
we do not believe it is necessary or desirable to seek
appropriations now, in anticipation of unpredictable and
highly contingent obligations.

3/JZ
Areas of Concern
Mr. Chairman, let me respond to several concerns about
the Support Fund that have been expressed by some members of
Congress.
One concern is that the availability of this source of
credit to the major industrial countries might be construed
by OPEC members as evidence that oil importers are able to
pay higher oil prices and thus encourage them to raise prices
more or faster than would otherwise be the case. I disagree
with this interpretation.
The Support Fund should not have the effect of encouraging
oil exporters to raise or maintain their prices; it is
designed to have the reverse effect. The most effective
strategy for reducing oil prices is to promote economic
security as an underpinning for cooperative action in the
energy area. The provision of financing through the Support
Fund would be for overall balance of payments needs -- not
for making oil payments -- and would be conditioned on
cooperative policies in the energy area to reduce dependence
on over-priced imported oil. The consequences of a failure
to provide needed financing would probably not fall primarily
on oil imports, but would much more likely take the form of
harmful trade and capital restrictions and excessive currency
depreciation which sould stimulate successive rounds of
retaliation, or inappropriately restrictive domestic policies.

A second concern is that the Support Fund is dedicated
to helping the strongest economic powers instead of concentrating
U.S. efforts on the poorest countries. In recent weeks we have
again demonstrated the depth of our commitment to assisting the
developing countries through proposals for cooperation and assistance in a variety of multilateral forums. The Support Fund is
obviously directed in the first instance to the developed countries
But this does not mean that the Support Fund is irrelevant to the
needs of the developing nations. The Support Fund will make a
major contribution to the developing countries by supporting
economic recovery in the industrial nations and the maintenance
of an open and liberal world economy. There is nothing that
we can do for the LDCs directly through aid that is going to be
nearly as important as our ability to sustain a vigorously expanding and non-inflationary world economy. The Support Fund is
also an integral part of the cooperative international response
to the energy situation which has had such severe effects on the
LDCs.

- 9-

57-5

At the same time, it is appropriate to emphasize that the
Support Fund is not a foreign aid device. It is a mutual insurance arrangement, where the major nations can cooperate to
protect against the risk of financial and economic disruption
that would have disastrous consequences for the entire world
economy. All nations will benefit, and all participants will
share the costs and risks involved in its operations. The United
States, if the need arose, would have the same rights to draw on
the Support Fund as any other participant. The Support Fund will
lend only at market rates of interest. Its loans will be mediumterm, seven years at a maximum, and will carry effective policy
conditions. The aim is to assure that financing will be available -- not that it will be available on the concessional terms
of an aid program.
A third concern is that the Support Fund seems to place all
of the financing risk on the OECD countries, and does not require
the oil producers to bear some of the risks and share some of the
responsibilities for dealing with the problems their policies have
created. It has been suggested that oil exporter participation
in the Support Fund, or an expansion of the IMF's special oil
facility, might be preferable.
Actually, the Support Fund reduces risk to the oil importers -the risk that they might be forced to accept onerous economic or
political conditions as a price for needed financing. It frees
the oil importers from a dependency that could weaken their resolve to participate in a cooperative response to the energy
situation, which is a basic objective of the Support Fund. It
would be anomolous to invite the exporters to help shape that
response.

- 10 -

There is no way to compel the oil exporting nations to
accept the risk of lending to particular countries. The oil
producing nations have -- and should have -- the freedom to
invest where they wish, accepting the normal risk associated
with investment. And they have been making a number of investments in the form of loans to OECD member countries. On
these loans they take the normal risk. We welcome such arrangements. But the Support Fund will give the borrowing countries
an alternative to dependence on OPEC loans and thus put them
in a position to resist demands on the part of OPEC lenders which
would give them excessive influence over the policies of the
borrowers. For my part, I am persuaded that the OECD group, whose
members share a fundamental harmony of interests, is the preferable
forum for development of a cooperative and effective response to
the energy and economic problems of the oil importing nations.
I should note also that the IMF oil facility does not require
the oil exporters to assume risk. Repayment of their loans to
the oil facility -- which at present carry reasonably favorable
rates of interest as well as a form of exchange value protection -is guaranteed, essentially by the quota subscriptions of the industrial nations. If a borrower from the oil facility were to
default, the lenders to the oil facility would nevertheless be
repaid on schedule. The oil facility is thus an attractive, no
risk investment outlet. Moreover, if the IMF were to become
significantly dependent on credit from the oil exporters, these
countries could gain considerable influence over the IMF's general
policies and operations at little cost.
A fourth concern is that there be adequate reporting to the
Congress on the status of Support Fund operations and U.S. participation. The Annual Reports of the National Advisory Council
and the Secretary of the Treasury will include a section on the
operations of the Support Fund. The Congress will also receive
information on Support Fund transactions, to the extent of any
U.S. obligations to the Fund, in the annual report transmitted to
the Congress on The Exchange Stabilization Fund.
We have every desire to keep the Congress informed on the
Support Fund, and should the Committee have any other suggestions
to improve reporting on the work of the Fund, I would be pleased
to receive them.
Nature of the U.S. Commitment
We remain committed to the International Monetary Fund as
the
central world
multilateral
help assure
functioning
economy.institution
A suitablytoexpanded
and a well-

-11 -

nr

reformed IMF provides the permanent framework for economic
and financial cooperation. Negotiations to strengthen its
ability to perform this function are nearing completion.
Two of three major components of the monetary negotiations
have been settled. The Interim Committee, at its recent
meeting, made a major breakthrough in reaching agreement on
increases in the quotas of almost all members, and on
arrangements for phasing gold out of the monetary system.
The Interim Committee will now seek to develop
acceptable amendments to the IMF's exchange rate provisions
by the time of its next meeting in January, so that action
can be taken on the complete package of quotas and amendments
that have been under consideration.
I am confident that this objective can be met. I am
also confident that the spirit of cooperation inherent in the
Support Fund has contributed importantly to the atmosphere
of cooperation and good will surrounding the monetary
negotiations in the IMF -- where concessions and compromise on
matters of longer term significance for the system have been
required of all.
In essence, the Support Fund is designed to provide
confidence:
Confidence to participants in their ability to
handle their own economic and financial .problems, and to deal
with their energy-related financing needs, without dependence
on the oil exporting countries; and
Confidence to the private markets in the strength
and integrity of the system as a whole.
Without such confidence, nations might turn to destructive
and self-defeating practices in an effort to preserve their
own positions. Once started, such action could quickly
spread -- with disastrous consequences for the world economy
which the United States could not escape.
I know from my discussions with other Finance Ministers
that the prospect of the Support Fund -- and our own
demonstration of willingness to cooperate through it -- have
already strengthened nations' resolve to avoid restrictive
and unfair practices. The agreement this spring to renew the
OECD trade pledge, despite considerable concern and
hesitation on the part of some, provides tangible evidence
of the beneficial impact the Support Fund can have.
a

- 12 -

J7^

If the need for Support Fund financing does arise, its
provisions are expressly designed to assure widespread
participation in financing by members, and to assure an
equitable distribution of risk regardless of financing
technique. The burdens of financing and risk will thus
not fall to the one or two countries that may be in a
relatively strong position at the time financing is needed.
As you are well aware, the United States has found itself
in this position in the past. I consider it far better to
have an appropriately designed and equitable multilateral
structure in place if the need arises, than to rely on
ad hoc efforts to deal with a sudden crisis. The Support
Fund spreads the risk, and its rules for decisions on
loans -- requiring two-thirds majority vote at a minimum -afford the United States an appropriate degree of control
over its operations. We hope the Support Fund will not have
to be used. But if the occasion arises, we will be fortunate
that it is available.
I am not unaware that at a time of many pressing
problems at home, questions are raised as to the direction
in which we should be devoting our attention and our
resources. I submit that the answer to these questions
is that we must do what we believe is right both domestically
and internationally. The danger in present circumstances
is not that we will frivolously devote our attention to the
international at the expense of the domestic; rather the
greater risk is that we will turn inward.
Ultimately, the U.S. interest in the Support Fund lies
in its contribution to world economic stability, stemming
as much from the confidence it will engender as from its
potential for providing needed financing. Agreement on
establishment of the Support Fund represents a fundamental
commitment to cooperation across the broad scope of economic
issues. It is a political act which signifies and strengthens
the common purpose of participating nations and their
resolve to pursue cooperative solutions to mutual problems.
The participation of the United States in the Support
Fund will convey unmistakably our commitment to cooperation
in preservation of a liberal and open world economic system -and it will do much to ensure that result. I urge your
strong support in this endeavor.
0O0

REMARKS BY THE HONORABLE WILLIAM E. SIMON
SECRETARY OF THE TREASURY
61ST ANNUAL MEETING OF THE

'

ASSOCIATED INDUSTRIES OF NEW YORK STATE
LAKE PLACID, N. Y., SEPTEMBER 18, 1975
MR, GEORGE, MR. KOESSLER, MR. SHAW, AND LADIES AND GENTLEMEN.

I AM DEEPLY HONORED TO JOIN ALL OF YOU HERE TONIGHT AS
YOU OPEN THE 61ST ANNUAL MEETING TO THIS DISTINGUISHED
ASSOCIATION.

LOOKING OVER THE FRIENDLY FACES IN THIS AUDIENCE

AND THE ROSTER OF SPEAKERS WHO WILL BE TALKING WITH YOU
FRIDAY AND SATURDAY, I ONLY WISH THAT I COULD HAVE THE
TIONAL

ADDI-

PLEASURE OF REMAINING HERE FOR THE FULL CONFERENCE.

WHEN CHARLIE GEORGE ASKED ME TO SPEAK TONIGHT, I WAS
PARTICULARLY ATTRACTED BY THE IDEA THAT YOUR CENTRAL CONCERN
HERE WOULD BE THE LONG-RANGE PROSPECTS FOR OUR SOCIETY.
CERTAINLY, THERE IS NO SINGLE
SIDERED

ISSUE THAT NEEDS TO BE CON-

MORE SERIOUSLY AND THOUGHTFULLY BY THE LEADERS OF

OUR BUSINESS AND FINANCIAL COMMUNITIES,

I SHOULD WARN YOU THAT IF YOU WERE HOLDING THIS
CONFERENCE IN WASHINGTON, YOU WOULD BE COMMITTING ONE OF
THE CARDINAL SINS IN THAT CITY: YOU WOULD BE ASKING PEOPLE
TO LOOK BEYOND THE DATE OF THE NEXT ELECTION. IT IS HARD TO
BELIEVE HOW MUCH ATTENTION AND ENERGY IS DEVOTED THERE TO
PUTTING OUT SMALL BRUSH FIRES. CONTINUALLY, IT SEEMS, THE
GOVERNMENT IS FORCED INTO ATTACKING THE EFFECTS RATHER THAN
THE CAUSES OF OUR PROBLEMS. THAT TENDENCY IS PARTICULARLY
DISTRESSING TODAY BECAUSE IT OFTEN MEANS THAT POLITICAL
CONSIDERATIONS ARE ALLOWED TO SHAPE POLICIES THAT SHOULD BE
BASICALLY ECONOMIC IN CHARACTER, AND IN THE END WE WIND UP
WITH BAD ECONOMICS AND BAD POLITICS. THIS PROCESS HAS
CONTINUED FOR SO LONG, I BELIEVE, THAT WE HAVE DRIFTED FAR
FROM OUR ECONOMIC MOORINGS — SO FAR, IN FACT, THAT WE ARE
NOW IN SERIOUS NEED OF REVERSING DIRECTIONS IN THIS COUNTRY.

I HAVE LEARNED FROM EXPERIENCE THAT YOU DON'T WIN ANY
POPULARITY^CONTESTS BY ASKING PEOPLE WHERE WE'RE HEADED IN

THIS COUNTRY AND WHAT CHOICES WE MUST MAKE FOR THE FUTURE.
I AM SOMETIMES TOLD THAT'S BEEN ONE OF MY BIGGEST MISTAKES
IN PUBLIC LIFE. BUT THE ISSUES MUST BE FACED, AND I AM
DELIGHTED TO SEE YOU TACKLING THEM HERE.

THERE ARE SOME WHO LOOK BACK UPON THE APPARENT PROSPERITY
OF THE 1960S AND CONCLUDE THAT OUR- PRESENT ECONOMIC CIRCUMSTANCES ARE SIMPLY AN ABERATION ~ AN IRRATIONAL NOSEDIVE IN
OUR ECONOMIC FORTUNES THAT MUST SOMEHOW BE ATTRIBUTABLE TO
ARAB SHEIKS AND RUSSIAN GRAIN PURCHASERS. NOTHING COULD BE
MORE FATUOUS. THE PROBLEMS THAT WE HAVE IN OUR ECONOMY TODAY
ARE THE NATURAL AND ALMOST PREDICTABLE OUTGROWTH OF MANY
YEARS OF MISGUIDED POLICIES AND MISSED OPPORTUNITIES. THESE
PROBLEMS ARE NOW DEEP-SEATED IN OUR SOCIAL AND ECONOMIC
LIFE, AND THEY WILL NOT DISAPPEAR WITHOUT THE APPLICATION
OF CONSISTENT AND PATIENT POLICIES. THE SINS OF A DECADE
WILL NOT BE FORGIVEN FOR BY A SINGLE YEAR OF PENANCE.

1&
- L\ LET'S LOOK BACK FOR A FEW MOMENTS TO THE 1960S — THE
"GO-GO" YEARS FOR OUR ECONOMY. THE PROSPERITY THAT WAS
PROCLAIMED FROM WASHINGTON DURING THOSE YEARS WAS REALLY
AN ILLUSION, FOR BENEATH THE SURFACE A DISEASE WAS
BEGINNING TO GNAW AWAY AT THE FOUNDATIONS OF OUR ECONOMY

— THE SICKNESS OF INFLATION. IN THE EARLY 60s, INFLATION
WAS CREEPING UPWARDS AT JUST OVER ONE PERCENT A YEAR. IN
THE MID-60S, AS WE ACCELERATED OUR EFFORTS IN VIETNAM,
LAUNCHED THE GREAT SOCIETY AND TRIED TO BUY PERMANENT
PROSPERITY, THE INFLATION RATE DOUBLED. THEN IN THE LATE

1960s

IT DOUBLED AGAIN. WAGE AND PRICE CONTROLS SUPPRESSED

INFLATION ARTIFICALLY AND ONLY TEMPORARILY BECAUSE AS HISTORY
HAS SHOWN TIME AND AGAIN, CONTROLS NEVER END INFLATION —
THEY ONLY POSTPONE IT. IN 1973, PRICES SHOT UP OVER 6 PERCENT
AND LAST YEAR THEY CLIMBED OVER 12 PERCENT -- THE STEEPEST
JUMP IN OUR PEACETIME HISTORY.

THE RESULTS WERE FORESEEABLE:

IRRESPONSIBLE FISCAL

AND MONETARY POLICIES — WHICH WERE THE BASIC SOURCE OF OUR
RAMPANT INFLATION — TIPPED THE ECONOMY INTO RECESSION.
AS RISING PRICES FORCED UP INTEREST RATES IN 1973 AND 1974,
THE HOUSING MARKET FELL APART. CONSUMERS, THEIR REAL INCOME
ERODED AND THEIR CONFIDENCE DESTROYED, BEGAN TO CUT DOWN
ON THEIR PURCHASES AND WE EXPERIENCED THE BIGGEST DROP IN
RETAIL SALES SINCE WORLD WAR II. WlTH TWO LEADING SECTORS
DRAGGED DOWNWARD UNDER THE PRESSURE OF INFLATION, THE
ECONOMY PLUNGED INTO THE MOST SEVERE RECESSION IN MORE THAN
A GENERATION.

THUS IT WAS INFLATION THAT WAS AT THE ROOT OF THE
RECESSION, AND IF WE WANT TO AVOID ANOTHER RECESSION WITH
MORE HUMAN MISERY, IT IS INFLATION THAT WE MUST CURE. AS
ONE ECONOMIST HAS SAID, INFLATION AND UNEMPLOYMENT ARE LIKE
OVEREATING AND INDIGESTION. "UNEMPLOYMENT IS THE
INDIGESTION YOU GET AFTER YOU SWALLOW THE PILL OF INFLATION."

BUT WHAT CAUSED THIS INFLATION?

WHERE ARE THE REAL

CULPRITS? CLEARLY, THE QUADRUPLING OF OIL PRICES AND
SCARCITIES OF FOOD HAVE HAD A MAJOR IMPACT DURING THE
1970S. AS WE HAVE SEEN, HOWEVER, INFLATION REALLY BEGAN
LEAPING UPWARDS DURING THE 1960S, SO THAT IF WE WANT TO
KNOW THE UNDERLYING CAUSES OF INFLATION, THEN WE MUST LOOK

BACK INTO THAT DECADE. IT WAS IN THAT DECADE THAT WE FIND
THE ROOTS OF OUR TROUBLE.

WHAT WE FIND SINCE THE MID-1960S ARE THREE RATHER
REMARKABLE DEVELOPMENTS -- TRENDS THAT HAVE LITTLE PARALLEL
IN OUR HISTORY AS A NATION.

FIRST, THERE HAS BEEN AN ENORMOUS GROWTH IN GOVERNMENT
SPENDING. IT TOOK THIS REPUBLIC 186 YEARS BEFORE THE FEDERAL
BUDGET REACHED $100 BILLION. THAT WAS IN 1962. YET ONLY
NINE YEARS LATER THE BUDGET HAD DOUBLED TO $200 BILLION.
THEN FOUR YEARS LATER — IN FISCAL YEAR 1975 — IT CROSSED

THE $300

BILLION MARK, AND WE WILL CROSS

$400 BILLION BY 1977.

- 7-

y

AS RESIDENTS OF NEW YORK STATE, YOU WELL KNOW THAT
THERE HAS ALSO BEEN A SIGNIFICANT INCREASE IN STATE AND
LOCAL GOVERNMENTAL SPENDING, SO THAT LOOKED UPON AS A
WHOLE, THE GOVERNMENT NOW OCCUPIES A VERY DOMINANT ROLE IN
OUR ECONOMIC LIFE. JUST BEFORE THE GREAT DEPRESSION,
GOVERNMENT SPENDING ACCOUNTED FOR .12 PERCENT OF OUR GROSS
NATIONAL PRODUCT; TODAY GOVERNMENT SPENDING AT ALL LEVELS
ACCOUNTS FOR SOME 33 PERCENT OF OUR GNPJ AND IF RECENT
GROWTH PATTERNS CONTINUE, IT WILL REACH 60% BEFORE THE END
OF THIS CENTURY. ANY GOVERNMENT WHICH TAXES AWAY MORE THAN
HALF OF WHAT PEOPLE EARN HAS ROBBED THEM OF A GREAT PART OF
THEIR ECONOMIC FREEDOM. AND CAN THERE BE ANY DOUBT THAT
WHEN OUR ECONOMIC FREEDOMS ARE DESTROYED, OUR PERSONAL AND
POLITICAL FREEDOMS WILL NOT BE FAR BEHIND?

IT HAS NEVER BEEN POLITICALLY POPULAR, OF COURSE, TO
INCREASE TAXES, SO THAT INCREASED FEDERAL SPENDING HAS MEANT
A STRING OF FEDERAL DEFICITS — V\ IN THE LAST 15 YEARS. AS

A RESULT, THE GOVERNMENT'S REGULAR BUDGET AGENCIES AS WELL
AS THE OFF-BUDGET AGENCIES ~ THE CREATURES SET UP A FEW
YEARS AGO PARTLY TO AVOID THE DISCIPLINE OF THE BUDGET
PROCESS —HAVE BEEN FORCED TO BORROW OVER A THIRD OF A
TRILLION DOLLARS FROM OUR PRIVATE MONEY MARKETS OVER THE
PAST DECADE — MONEY THAT MIGHT OTHERWISE HAVE BEEN USED TO
BUILD NEW PLANTS AND CREATE NEW JOBS IN THE PRIVATE SECTOR,
THIS EXCESSIVE GOVERNMENTAL BORROWING, I MIGHT ADD, HAS ALSO
PREVENTED INTEREST RATES FROM FALLING AS FAR AS THEY SHOULD
HAVE. PARTLY IN AN EFFORT TO ACCOMMODATE THESE DEFICITS,
MONETARY POLICY HAS ALSO PUMPED TOO MUCH STIMULATION INTO THE
ECONOMY OVER THE PAST DECADE. THE MONEY SUPPLY OVER THE PAST
10 YEARS HAS BEEN GROWING AT ALMOST THREE TIMES THE RATE OF
THE PREVIOUS 10 YEARS, SIGNIFICANTLY ADDING TO INFLATIONARY
PRESSURES.

THE REASONS FOR THIS DRAMATIC GROWTH IN FEDERAL SPENDING
ARE NOT HARD TO FIND. FOR YEARS, WE HAVE BEEN ELECTING

- 9POLITICIANS WHO PROMISE US THAT WE CAN CLEAN'UP OUR ENVIRONMENT, REBUILD OUR HOUSING STOCK, OVERHAUL OUR TRANSPORTATION,
PUT EVERYONE THROUGH COLLEGE, FEED THE WORLD, EXPLORE THE
UNIVERSE, AND SUPPORT EVERYONE ON A HIGHER STANDARD OF LIVING
— ALL AT THE SAME TIME. IT JUST CAN'T BE DONE, EVEN BY THE
MOST POWERFUL NATION ON EARTH. WE CANNOT AFFORD GUNS AND
BUTTER AT THE SAME TIME, JUST AS WE CANNOT BUY A GREAT
SOCIETY ON THE LAYAWAY PLAN, OR ABOLISH THE BUSINESS CYCLE,
NEITHER MAN NOR GOVERNMENT CAN CONTINUE LIVING BEYOND THEIR
MEANS INDEFINITELY. EVENTUALLY THE PRICE MUST BE PAID —
EITHER THROUGH HIGHER TAXES OR THROUGH THE CRUELEST AND MOST
REGRESSIVE TAX OF ALL, INFLATION. THAT IS ONE OF THE MOST
IMPORTANT LESSONS WE SHOULD HAVE LEARNED FROM THE PAST
DECADE.

LET US LOOK NOW AT A SECOND AND RELATED TREND WHICH HAS
HAD A DESTRUCTIVE IMPACT UPON THE ECONOMY IN RECENT YEARS:

- 10 THE ENORMOUS PROLIFERATION OF FEDERAL REGULATIONS AND LAWS
i

WHICH RESTRICT THE OPERATION OF PRIVATE ENTERPRISE.

MANY OF YOU ARE PROBABLY FAMILIAR WITH THE MOST EGREGIOUS
REGULATORY PRACTICES — THOSE REQUIRING TRUCKS TO RETURN
WITH EMPTY VANS, FOR INSTANCE, OR FORCING UP THE PRICES FOR
INTERSTATE AIR TRAVEL. WHILE THESE ABUSES ARE SPREAD ACROSS
THE REGULATORY LANDSCAPE AND COST CONSUMERS UNTOLD BILLIONS
OF DOLLARS, IT IS PERHAPS IN THE ENERGY FIELD THAT GOVERNMENTAL REGULATION IS NOW CAUSING THE MOST SIGNIFICANT PROBLEMS.
IT HAS BEEN APPARENT FOR MORE THAN 20 YEARS THAT THIS NATION
WAS ON A COLLISION COURSE WITH ITS ENERGY POLICY. EXPERTS
HAVE BEEN WARNING US AGAIN AND AGAIN THAT OUR DEMANDS WERE
GROWING FASTER THAN OUR SUPPLIES. BUT INSTEAD OF ALLOWING
THE PRIVATE ENTERPRISE SYSTEM TO RISE TO THIS CHALLENGE, AS
IT CAN, WE HAVE ALLOWED THE GOVERNMENT TO ERECT ONE IMPEDIMENT

AFTER ANOTHER TO DISCOURAGE GREATER PRODUCTION. IT CAN

FAIRLY BE SAID THAT OUR ENERGY CRISIS, LIKE OUR INFLATION
AND OUR RECESSION, SHOULD CARRY A LABEL: MADE IN WASHINGTON,

D. C,

CONSIDER SOME OF THE WAYS THAT ENERGY PRODUCERS ARE
BEING BOUND HAND AND FOOT BY THE GOVERNMENT.

— DESPITE CONTINUAL WARNINGS FROM EXPERTS, THE FEDERAL
POWER COMMISSION HAS BEEN REQUIRED FOR MORE THAN TWO DECADES
TO KEEP THE WELLHEAD PRICE OF NATURAL GAS AT AN ABNORMALLY
LOW LEVEL IN ORDER TO HOLD DOWN PRICES FOR CONSUMERS. BUT
THESE CONTROLS HAVE REDUCED THE INCENTIVES FOR DEVELOPMENT
OF NEW DOMESTIC SUPPLIES, SO THAT PREDICTABLY THERE IS MUCH
LESS NATURAL GAS THAN WE NEED TODAY. NEW YORK IS ONE OF A
DOZEN STATES IN THE EASTERN PART OF THE COUNTRY WHICH COULD

BE SEVERLY HIT BY A NATURAL GAS SHORTAGE THIS WINTER. WE
ARE PUSHING EMERGENCY LEGISLATION WHICH WOULD HELP TO
AMELIORATE THE EFFECTS OF THE SHORTAGE, BUT THE ONLY REALISTIC
SOLUTION TO THIS PROBLEM ON A LONG-TERM BASIS IS TO END THE

if
- 12 DISINCENTIVES FORCED UPON PRODUCERS BY GOVERNMENTAL
REGULATION.

— INSTEAD OF LEARNING FROM THE NATURAL GAS EXPERIENCE,
WE ARE NOW REPEATING OUR MISTAKES IN THE OIL INDUSTRY WHERE
WE HAVE AGAIN IMPOSED PRICE CONTROLS. AND AGAIN THE RESULT
IS PREDICTABLE: BY CONTROLLING THE PRICE OF DOMESTIC OIL
AND THUS REDUCING THE INCENTIVE FOR NEW PRODUCTION, WE ARE
FORCING CONSUMERS TO BUY MORE EXPENSIVE PRODUCTS FROM FOREIGN
OIL SOURCES AND ARE WILLINGLY SUBJECTING OURSELVES TO THEIR
BLACKMAIL. ONCE AGAIN THE ANSWER IS DECONTROL,

-- IN THE FIELD OF NUCLEAR ENERGY, THE STORY IS AGAIN
A SAD ONE. THIS COUNTRY WAS A PIONEER IN THE DEVELOPMENT

OF NUCLEAR POWER. YET TODAY IT CAN TAKE UP TO 11 YEARS TO
BUILD A NUCLEAR POWER PLANT IN THE UNITED STATES AND ONLY 4
TO *& YEARS IN EUROPE AND JAPAN. NUCLEAR ENERGY PROVIDES
LESS THAN 11 OF OUR CURRENT ENERGY CONSUMPTION — FAR BELOW
ITS POTENTIAL. WHY? BECAUSE OF EXCESSIVE GOVERNMENTAL

REGULATION WHICH IMPEDES THE CONSTRUCTION OF,MORE NUCLEAR
PLANTS.

— OR CONSIDER THE CASE OF COAL. THIS NATION HAS ABOUT
A THIRD OF ALL THE RECOVERABLE COAL RESERVES IN THE WORLD.
WE ARE THE LARGEST EXPORTER OF COAL IN THE WORLD, AND AT
1973 LEVELS OF CONSUMPTION WE HAVE ENOUGH COAL TO BURN FOR
800 YEARS. YET, BECAUSE OF EXCESSIVE GOVERNMENTAL INTERVENTION,

COAL PRODUCTION IN THE UNITED STATES TODAY IS LOWER

THAN IT WAS THIRTY YEARS AGO.

I RECOGNIZE THAT SOME OF THESE IMPEDIMENTS TO ENERGY
PRODUCTION REFLECT PUBLIC CONCERN ABOUT PUBLIC HEALTH AND
PROTECTION OF OUR ENVIRONMENT. BUT THROUGH BALANCED POLICIES
WE CAN MEET THOSE CONCERNS AND EXPAND OUR ENERGY SUPPLIES AT
THE SAME TIME. I DEEPLY BELIEVE THAT IT IS TIME FOR THE
CONGRESS TO STOP ITS ENDLESS DEBATES ON ENERGY AND START
WORKING WITH THE PRESIDENT ON A NATIONAL ENERGY POLICY THAT
ENCOURAGES BOTH CONSERVATION AND GREATER PRODUCTION. EITHER

9°
- MWE WAKE UP TO THIS CHALLENGE SOON, OR WE ARE GOING TO FIND
THAT, LIKE SAMSON, WE HAVE GIVEN IT ALL AWAY TO THESE MODERNDAY DELIALAHS OF THE MIDDLE EAST.

LET ME TURN NOW TO A THIRD TREND OF RECENT YEARS: IT
IS A TRAGIC FACT THAT OVER THE LAST DECADE, AS THE FORCES OF
BIG GOVERNMENT HAVE BEEN OVERFED AND OVERNOURISHED, THE
PRIVATE ENTERPRISE SYSTEM HAS GRADUALLY BEEN WEAKENED. AS
WE HAVE STRENGTHENED THE PUBLIC SECTOR, WE HAVE DIRECTED
BILLIONS OF DOLLARS AWAY FROM THE PRIVATE SECTOR AND WE HAVE
DISCOURAGED VITALLY NEEDED SAVINGS AND INVESTMENT IN THE
FUTURE. - _

THE RECORD OF CAPITAL INVESTMENT IN THE UNITED STATES
IN RECENT YEARS HAS BEEN IN THE LOWEST OF ANY MAJOR INDUSTRIALIZED
NATION IN THE FREE WORLD. NOT SURPRISINGLY, OUR RECORD OF
PRODUCTIVITY GROWTH DURING THIS SAME PERIOD WAS ALSO AMONG
THE LOWEST OF THE MAJOR INDUSTRIALIZED NATIONS.

WHY HAVE WE FAILED TO BUILD AND EXPAND OUR INDUSTRIAL
BASE? A FUNDAMENTAL REASON, I WOULD ARGUE, IS THAT WE HAVE
HAD POLICIES WHICH PROMOTE PERSONAL CONSUMPTION AND FEDERAL
SPENDING AT THE EXPENSE OF PERSONAL SAVINGS, INVESTMENT AND
CAPITAL FORMATION. TOO MANY OF OUR FINANCIAL RESOURCES HAVE
BEEN DIVERTED FROM THEIR MOST PRODUCTIVE USE, THE PRIVATE
SECTOR, TO THEIR LEAST PRODUCTIVE USE, THE GOVERNMENT. A
RELATED PART OF THE PROBLEM HAS BEEN THE SERIOUS DETERIORATION
IN CORPORATE PROFITS SINCE THE MID-1960S. CONTRARY TO
POPULAR OPINION, AFTER-TAX PROFITS MEASURED IN REAL TERMS

HAVE DROPPED BY 50 PERCENT SINCE 1965. IT IS NOT UNFAIR TO
SAY THAT WE HAVE BEEN AND REMAIN TODAY IN A PROFITS DEPRESSION
IN THE UNITED STATES,

THE INTERACTION OF THE VARIOUS LONG-RANGE TRENDS THAT
I HAVE MENTIONED HERE TONIGHT — EXCESSIVE FISCAL AND MONETARY
POLICIES, OVERZEALOUS REGULATION BY THE GOVERNMENT, AND
INADEQUATE CAPITAL FORMATION AND ECONOMIC GROWTH — HAS HAD

#1
- 16 A NUMBER OF EFFECTS WITHIN THE ECONOMY, BUT NONE HAS BEEN
MORE SIGNIFICANT THATN THE GENERAL INFLATION THAT HAS RESULTED.
THESE ARE THE ROOT CAUSES OF THE INFLATION THAT BEGAN
HEATING UP IN THE 1960S. THESE ARE AT THE CORE OF THE
INFLATIONARY PSYCHOLOGY WHICH STILL GRIPS OUR NATION. AND
AS WE WORK OUR WAY OUT OF THIS RECESSION — AS WE ARE TODAY
— THESE MUST CONTINUE TO BE AT THE CENTER OF OUR ATTENTION.

WHEN YOU SEE THINGS IN THIS LIGHT — WHEN YOU RECOGNIZE
THAT INFLATION HAS BEEN THE MAJOR CAUSE OF RECESSION AND
THAT OUR INFLATION IS ROOTED IN MISGUIDED POLICIES OF THE
PAST — THEN YOU CAN ALSO UNDERSTAND THE FOUNDATIONS OF THE
ADMINISTRATION'S ECONOMIC POLICIES. LET ME SUMMARIZE OUR
ESSENTIAL GOALS FOR YOU.

CLEARLY OUR FIRST AND PRIMARY OBJECTIVE MUST BE TO
ACHIEVE A SOLID ECONOMIC RECOVERY. THE PROCESS OF RECOVERY
HAS OBVIOUSLY BEGUN AND ON THE BASIS OF A WIDE RANGE OF
ECONOMIC INDICATORS, WE THINK THAT IN COMING MONTHS IT WILL

-17BE VIGOROUS AND HEALTHY.

y]3

NOW OUR TASK IS TO MANAGE THE

RECOVERY SO THAT IT WILL ALSO BE DURABLE AND LASTING.

TO

ACHIEVE THAT GOAL, WE BELIEVE IT IS ESSENTIAL TO STRIKE A
SOUND BALANCE IN OUR POLICIES ~

PROVIDING ENOUGH FUEL TO

THE ECONOMY TO CONTINUE OUR FORWARD MOMENTUM BUT CAREFULLY
AVOIDING MEASURES WHICH WOULD PROPEL US BACK TO PROSPERITY
AT BREAKNECK SPEED AND SURELY BRING ANOTHER SPURT OF INFLATION.
TWICE IN THE LAST DECADE WE AVE ENGAGED IN STOP-AND-START
POLICIES, AND EACH TIME WE HAVE TAKEN A ROLLERCOASTER RIDE
THAT LEFT US WORSE OFF THAN BEFORE.

LET US HAVE PROGRESS BUT,

FOR A CHANGE, LET'S MAKE IT FIRM AND DURABLE; LET'S WARM UP
THE ECONOMY BUT, FOR A CHANGE, LET'S NOT OVERHEAT IT.

AS WE GO ABOUT THAT TASK, I BELIEVE IT IS CRUCIAL THAT
THE NATION ALSO MAKE A FIRM, DEDICATED EFFORT TO REVERSE THE
THREE LONG-RANGE TRENDS THAT I MENTIONED EARLIER.
WE MUST BRING A HALT TO RUNAWAY FEDERAL SPENDING AND
INTRODUCE GREATER BALANCE TO OUR FISCAL AND MONETARY POLICIES.

WE MUST LIFT THE DEAD HAND OF GOVERNMENTAL REGULATION
THAT IS IN THE PROCESS OF STRANGLING OUR PRIVATE ENTERPRISE
SYSTEM.

AND WE MUST CREATE A MORE FAVORABLE ENVIRONMENT FOR
THE GROWTH OF CAPITAL INVESTMENT SO THAT WE CAN CREATE MORE
JOBS FOR A GROWING LABOR FORCE AND CONTINUE TO RAISE THE
STANDARD OF LIVING FOR ALL AMERICANS. LET US RECOGNIZE THAT
CAPITAL CREATION IS REALLY JOB CREATION, AND THAT JOB CREATION
MEANS AN EXPANDED WORK FORCE, HIGHER REAL EARNINGS AND LOWER
PRICES FOR CONSUMERS. OVER THE NEXT DECADE, OUR TOTAL
CAPITAL INVESTMENT NEEDS WILL BE TRIPLE THOSE OF RECENT
YEARS. LET THERE BE NO DOUBT HERE TONIGHT THAT MEETING THIS
CAPITAL INVESTMENT GOAL IS ONE OF THE BEST MEANS WE HAVE OF
OVERCOMING THE INDUSTRIAL PROBLEMS OF CITIES THROUGHOUT THE
NORTHEAST. TWO MONTHS AGO THIS ADMINISTRATION INTRODUCED
FAR-REACHING TAX PROPOSALS SPECIFICALLY DESIGNED TO PROMOTE

- 19 GREATER CAPITAL AND JOB FORMATION. WITHOUT DISCUSSING
THE SPECIFICS HERE, I URGE YOU TO EXAMINE THOSE PROPOSALS
AND TO LEND US YOUR STRONG SUPPORT.

LADIES AND GENTLEMEN: WHAT ALL THIS BOILS DOWN TO IS
A FUNDAMENTAL CHOICE ABOUT THE FUTURE OF OUR GREAT REPUBLIC.
I SINCERELY BELIEVE THAT WE HAVE REACHED A CROSSROADS IN OUR
NATION'S HISTORY, FOR MORE THAN 10 YEARS WE HAVE BEEN
GRADUALLY INCREASING THE POWER OF THE CENTRAL GOVERNMENT IN
OUR DAILY LIVES. As OUR FREEDOMS HAVE BEEN CHIPPED AWAY,
YEAR IN AND YEAR OUT, WE HAVE ALSO LOST SOME OF THAT GLOW
THAT WAS PARTICULARLY DISTINCTIVE ABOUT THE AMERICAN
EXPERIENCE ~ OUR BOLDNESS AND VITALITY HAVE BEEN DRAINED A
BIT; OUR INGENUITY HAS BEEN CHALLENGED BY NATIONS AROUND THE
WORLD; WHY, SOME NATIONS HAVE EVEN COME TO BELIEVE THEY CAN
PLAY US FOR PATSIES, AND ALAS, OUR FREE ENTERPRISE SYSTEM
— THE GREATEST ENGINE FOR SOCIAL PROGRESS THAT THE WORLD
HAS EVER KNOWN — HAS SLOWED DOWN PERCEPTIBLY SO THAT NOW

IT IS CHUGGING ALONG IN SECOND GEAR, FAR BELOW ITS POTENTIAL.

I BELIEVE THAT THE TIME HAS NOW COME TO CHOOSE — TO
CHOOSE BETWEEN A CONTINUATION OF THE LAST 40 YEARS, A TREND
THAT WILL EVENTUALLY MEAN THAT OUR ECONOMIC AND POLITICAL
FREEDOMS WILL BE SACRIFICED AND THAT OUR SOCIETY WILL BE RUN
BY THE SAME FREE SPENDERS WHO HAVE GIVEN US THE WORST INFLATION
IN OUR PEACETIME HISTORY AND THE WORST RECESSION IN MORE THAN
A GENERATION, OR AS AN ALTERNATIVE, THAT WE RESTORE OUR BASIC
FREEDOMS AS AMERICANS, REVIVE OUR PRIVATE ENTERPRISE SYSTEM,
AND REASSERT AMERICA'S SENSE OF DESTINY IN THE WORLD.

THIS IS THE CHOICE THAT WE MUST MAKE AS A NATION IN
COMING YEARS. THIS IS THE CLASSIC CHOICE BETWEEN FREEDOM
AND SOCIALISM. THIS IS THE CHOICE THAT WILL SHAPE THE LIVES
OF OUR CHILDREN AND OUR CHILDREN'S CHILDREN.

I HAVE ALWAYS BELIEVED THAT EVERY PUBLIC OFFICIAL MUST
TAKE THIS AS HIS HIGHEST GOAL: TO TURN OVER TO OUR CHILDREN

A NATION THAT IS STRONGER AND BETTER —

THAT.OFFERS GREATER

OPPORTUNITIES FOR PERSONAL AND SPIRITUAL FULFILLMENT — THAN
THE NATION WE HAVE INHERITED. I FIRST CAME TO WASHINGTON
BECAUSE — AS CORNY AS IT MAY SEEM — I WANTED TO REPAY A
SMALL AMOUNT OF WHAT THIS COUNTRY HAS GIVEN ME. AND I AM
PROUD TO BE THERE. BUT WHEN I SEE THE ABUSES THAT WASHINGTON
HAS INFLICTED AND IS CONTINUING TO INFLICT UPON PRIVATE
ENTERPRISE AND UPON OUR FREEDOMS, I CAN ONLY SHUDDER ABOUT
THE WORLD THAT WE ARE BUILDING FOR OUR CHILDREN. I BELIEVE
THAT THE TIME HAS COME FOR NEW DIRECTIONS IN THIS COUNTRY —
TO SET THE SHIP OF STATE ON A NEW COURSE. AND I BELIEVE THE
AMERICAN PEOPLE KNOW THIS. THERE IS NO QUESTION IN MY MIND
THAT THE PEOPLE OF THIS COUNTRY WANT A FRESH START, AS THE
PRESIDENT HAS SAID. BUT I ALSO BELIEVE THAT WE WILL MAKE
THE RIGHT CHOICES ABOUT THE FUTURE ONLY IF MORE OF OUR
CITIZENS — AMERICANS OF STRENGTH AND CHARACTER LIKE THOSE

- 22 OF YOU HERE TONIGHT ~ ARE WILLING TO FIGHT FOR THEIR
CONVICTIONS. I UGE YOU TO STAND UP AND BE COUNTED.

THANK YOU.

######

- 2-

996

political ones, we have succumbed to the wrong instincts.
Both Democrats and Republicans have made the same mistakes.
And the result has been a sad record of stop-and-go policies
that have only accentuated the forces of expansion and
contraction and, in fact, must be held accountable for a
significant amount of our current economic troubles.
In view of that record and considering the vigor of
the recovery that is now underway, I would suggest that
this is not a time for "politics as usual" -- not for fancy,
headline-catching action in Washington -- but for a calm,
steady hand on the tiller. We must not be rigid in our
approach.Very shortly, for instance, we must decide whether
to extend the recent tax cut and it is important that we
maintain an open mind on that issue. But contrary to past
practice, I would hope that our answer would be dictated
more by economic than by political considerations.
A few days ago, I asked one of the top economists in
the government about his views on the tax questions, and he
said, "I've been in the government so long that I'm not sure
whether my opinions are based on economics or politics."
While that surely happens to the best, it is a tendency we
must learn to resist.
The recovery that we've experienced in the last several
months does, I believe, provide solid grounds for encouragement.
It came earlier and it has been stronger than most forecasters
predicted, and I think that it will continue to be stronger
and that the unemployment rate will come down more rapidly
than many now think. Let's look for a moment at the dimensions
of the recovery:
1.5 million jobs have been added to the work force
since March.
The unemployemnt rate has held steady at 8.41 for
two months in a row, significantly below the 9.21 peak
reached in May.
After sliding downwards for five consecutive quarters,
including a decline of 11.41 on a annualized basis during
the first quarter of this year, the Gross National Product
has reversed course, rising at a 1.6% annual rate in the
second quarter.
Industrial production has now risen four months
in a row, and the August increase of 1.3% was the biggest
single increase in three years.

- 3-

iU/

The composite of 12 leading economic indicators has
now moved up strongly for five months in a row.
Inventories have been sharply reduced, opening the
way to rising production levels.
And exports are up considerably.
Moreover, the Government is supplying a great deal
more stimulus to the economy than most people realize.
You will often read that the $44 billion deficit incurred by
the Federal Government in fiscal year 1975 resulted from a
loss of revenue caused by the recession. That is partiallytrue. But it is also true that Federal outlays during that
year were $56 billion higher than the year before -- a 21
percent increase and the biggest single percentage increase in
more than two decades. Monetary policy has also been stimulative
as the total of currency and bank demand deposits -- the M
money supply, as it is called by economists -- has Ls.zst 1increased at an annualized rate of over 8-1/2% the first half
of this year.
A compilation of 21 well-known, private economic models
show that 10 of them now predict that real growth in the
third quarter will be over 5 percent, and 10 of them show
it will be in excess of 6 percent. Similar growth patterns
are foreseen for the fourth quarter and into 1976. Within
the government itself, we now anticipate a moderate to strong

- 4-

^9

expansion of real output extending through the second half
of the year into 1976. And if we manage .the recovery
properly -- if we exercise a high degree of prudence -- then
we believe that the recovery will be both sustained and
vigorous beyond that time.
I hasten to re-emphasize the need for prudence because
there are certainly a number of shoals ahead and we must be
careful to avoid them.
The most obvious is the renewed threat of inflation.
The inflationary surge that we've experienced in the last
few weeks is directly related to increases in energy and
food costs and we are hopeful that it will be only a bubble,
soon passing out of the system. But it is also a grim
reminder that even the most severe recession in more than a
generation has not fully defeated the forces of inflation.
Indeed, the rate of increase in the Consumer Price Index so
far this year has averaged over 7%, more than triple the
rate that I would consider acceptable over the long-run.
And the last WPI figures also brought a significant increase
in industrial prices.
A prolonged siege of new, double digit inflation would
almost certainly wreck our hopes for a durable economic
recovery. We must never forget that excessive inflation was
the basic cause of the recession and that it remains our
most fundamental economic problem. Administration critics
argue that our concern with inflation reflects an insensitivity
toward jobs and the poor: to the contrary, it is only by
conquering inflation that we are going to achieve the long-range
growth that is essential for the creation of new jobs. We do
not have the luxury of choosing between jobs and inflation:
experience teaches us that we must pursue both of these goals
simultaneously. As we continue to stimulate the economy,
then, it is essential that we also take extreme care in avoiding
policy excesses which would whip up the inflationary forces that
still plague our economy. For policy purposes, this means
three things:
(1) We must maintain a stout defense against continuing
efforts to bust the Federal budget. Earlier this year the
country applauded as the President succeeded in vetoing
several bills that would have cost the taxpayers an additional
$6 billion before 1977. It has not been widely noticed,
however, that since that time the Congress has begun to make
serious inroads on the President's deficit ceiling of $60
billion. In fact, there is now a considerable question of
whether the congress can contain itself within its own
target of $68.8 billion deficit. The senate keeps a

- 5-

scorecard on Congressional budget activities of the Congress,
and in their most recent report they conceded that the
Congress could overshoot its own target by over $5 billion.
There can be no question that the most effective discipline
that can be imposed upon the Congress is the voice of the
people: if people back home fully support the effort to
hold down spending, it will be done. Without that support,
we have no reason to be as optimistic, especially as elections
approach.
(2) Turning now to a second vital point, it is imperative
that we settle upon a national
energy policy. In the short run, it is especially critical
that we reach agreement upon policies concerning oil and
natural gas. In the long run -- and in this case, the
long run means sooner rather than later -- we must also
adopt more effective policies to encourage much greater
development and use of our coal resources and of non-fossil
fuels, as well as policies that will ensure significantly
greater energy conservation.
Let me talk briefly about our views on the immediate
questions of oil and natural gas. With regard to domestic
oil prices, you will recall that the President early this
year proposed a decontrol plan coupled with plans for tax
rebates and a windfall profits tax. Together, these measures
would have reduced consumption of oil, promoted greater
domestic development, and would have also had only a minimal
impact upon consumers and our chances of recovery. Then for
months the Congress didled and dawdled. The President began
seeking a compromise, meeting again and again with Congressional
leaders, but still the Congress talked and talked but refused
to act. Now we are in a situation in which decontrols have
expired, the President has offered again to compromise, and
the Congress still can't make up its collective mind what
to do. Our position in the Administration is clear: the
President is willing to accept the gradual decontrol of oil
prices. We are also willing to go forward with a plan for
more immediate decontrol and we believe this can be carried
out without imposing a heavy burden upon the economic recovery

- o-

/&¥

that is underway. What we are not willing to do -- and I
believe the American people feel the same way --is to accept
endless delays and debates. The time has long since come for
concrete action.
Now with regard to natural gas, we face the possibility that
if the winter is severe, a dozen or so of our Eastern states could
suffer serious shortages, several other states -- including some
represented here -- could also feel a pinch, and there might be
layoffs in a number of industries that are heavily dependent on
natural gas supplies. Unfortunately, this country has allowed
the natural gas issue to drift so long that it will not be possible
to eliminate all of the shortages this winter. But we can help
to alleviate them, and toward that end the President last week
sent to the Congress and emergency, four-part bill that would
accomplish that purpose. One part of this bill would allow
qualified interstate pipelines to purchase
natural gas from intrastate sources at uncontrolled prices for
a period of 180 days; another part of the bill would permit
high-priority users to purchase their natural gas directly from
intrastate sources at uncontrolled prices and then arrange for
transportation through interstate pipelines. Both parts of the
bill thus point up a conclusion that I have been advocating for
as long as I have been in Washington: that the ultimate answer
to the issue of natural gas lies in deregulation. As we proceed
to consider the emergency natural gas legislation, I hope that
no one will ignore the fact that we must also move toward permanent deregulation because that is the only ultimate solution.
(3) A third objective in the struggle to hold down inflationary
pressures is to do all that we can to limit further price increases
by the OPEC oil bloc. The prices they are charging now cannot
be justified on either economic or financial grounds; they are
politically determined and, truth to tell, they amount to political
blackmail. As I have stressed on other occasions, I believe that
another major increase in their prices this fall would seriously
jeopardize the balance upon which worldwide recovery now depends.
Three weeks ago, I had a chance to talk with the OPEC finance
ministers, and I was encouraged by a sense of moderation and
realism that most of them displayed. But the question of another
increase is not yet resolved; until it is, the United States must
leave no doubt about its views. And I can assure you that we
aren't.
The problems of inflation, then, arise in many different
wavs -- in irresponsible government fiscal and monetary policies,
in questions of domestic energy policy, and in international oil
prices -- and we must work on all of these fronts at the same time.
None of them can be ignored.

J/6?
- 7-

Still another immediate concern with regard to the prospects
for recovery, and one that is related to inflation, has been the
pattern of rising interest rates. More than six months ago, when
we began warning that private borrowers might be crowded out of
the capital market by the government devouringso much of the available funds, we were hotly roasted by many of the apologists for
big government spending. Their models, they said, showed that
interest rates would decline and private borrowers would be able
to obtain ample funds. But the fact is that the "crowding out"
that concerned us has already started. Furthermore, there has
been an accentuation of the "flight to quality" that we have seen
in the financial markets in the recent past. Funds are still
available to high quality borrowers, but many lower quality
borrowers are finding that they no longer have access to the
market at prices they can afford. Looking down the road, a
continuation of this trend would spell very serious trouble
for the future growth of the economy. So it is imperative that the
Federal Government exercise greater fiscal discipline, bringing
inflation under control and wringing out the inflationary expectations that are so deeply ingrained in the American people.
A third area of immediate concern for all of us must be
consumer confidence. While I do not place full faith and credit
in the results of public polls, they do bear watching and recently
they have shown a sag in public expectations. And it is clear
that the recent decline has been directly related to the reappearance of inflation. I need not remind you that a precipitous
drop in consumer confidence touched off by the wave of doubledigit inflation, was a major element in bringing the last recession. It would be tragic to let that happen again. Instead,
it is clear to me that we must follow the same policy prescriptions
that I have suggested earlier: strong, steady policies that support
the forces of recovery but carefully avoid the excesses that would
rekindle inflation.
I could continue at some length on current problems and
prospects, but let me turn for a moment to longer-range and even
more fundamental concerns. As you can see, I have a high degree
of confidence in the immediate future. The recovery is off to
a solid start and, as I have said, it can be durable and lasting
if we act prudently. I am, however, increasingly concerned by
what mav lie a few years beyond the horizon. Our economy cannot with
stand a continual battering for the next five or ten years without
suffering rather severe co-nsequences; and let there be no doubt:
serious damage to our economic system would most assuredly be a
body blow to our political system as well.

- 5 -

/J9
f

-- Our corporations, both financial and non-financial,
cannot tolerate a prolonged period of inflation in the doubledigit or high single-digit range;
-- They cannot create the 11 million new jobs we need
before 1980 unless far more of our resources are pumped into
new capital investments.
— They cannot survive higher and higher degrees of
illiquidity.
-- They cannot grow and prosper if there is a continual
depression in profits.
— They cannot operate efficiently and imaginatively if
they are strangled by a growing web of government regulations —
regulations are especially vexing in the field of energy.
-- And they cannot survive the political pressures of a
restive society unless they regain public esteem and attract
many of the brightest and most able of our young people.
None of these trends will be easy to reverse. Their
causes are deep-seated and have built up over a long period.
The habit of excessive governmental spending, which lies at
the root of so many of our difficulties, extends back for
years: We have had 14 Federal deficits in the last 15 years,
and 40 in the last 48 years. The sins of a decade or more will
not be forgiven by a single day or even by a single year of
penance.
The critical point is that we get started — that we
begin working to slow and then reverse the patterns. And we
should be acting now, not two or three years hence when the
problems could be significantly bigger and more difficult to
master. If we wait too long, the solutions that will be forced
upon us will make a mockery of the traditions that we hold dear
in this country. The first rumblings for new wage and price
controls can already be heard in Washington. Indeed, the wolf
of Big Government is nearing our door, and it will not be driven
off unless we act soon.
Late in July, I went before the House Ways and Means
Committee to propose some rather fundamental changes in our
tax code that would encourage a higher rate of capital formation — or as the President aptly calls it, a new program of
job formation. It was obvious that we would meet with stiff
opposition both in the Congress and in*the Press, and we knew
the chances were slim that Chairman Ullman and his Committee
would act on our proposal before the end of the year. But it
was important, we thought, to generate a more serious public
work
debatefor
about
the changes
capital formation
that are so
and
clearly
to begin
needed
laying
in the future.
ground-

- 9-

4t7

This is the posture that I believe must be taken by
all of us here} To be forthright about the crucial choices
that our nation must make and to be aggressive in pursuing
our desired ends. There can be no question about how far
this country has wandered from its moorings. Economic freedom is now on the line; political freedom is on the line; and
personal freedom is on the line. And if people who believe
in those freedoms aren't willing to stand up and fight for
them, who will?
- *
Ladies and gentlemen: I sincerely believe that we have
reached a crossroads in our nation's history. For more than
40 years we have been gradually increasing the power of the
central government in our daily lives. We have permitted the
country to drift away from economic ibeliefs that were once
considered fundamental in the United States: Notions that you
must live within your means and that individual Americans acting within a free marketplace will in the end make better
decisions and enjoy more satisfying'lives than if those decisions are forfeited to the government. To me, it is clear that
this drift is responsible for much of the inflation that we
have suffered in recent years. It lies at the foundations of
our recession. And it has helped to generate a crisis in energy;
Today our free enterprise system -- the greatest engine for
social progress that the world has ever known -- has slowed down
perceptibly so that it is chugging along in second gear, far
below its potential.
I believe that the time has now come to choose -- to
choose between a continuation of the past decade, a trend
that will eventually mean that our economic and political
freedoms will be wrapped in a straitjacket and our economy
will be run and managed out of Washington, or as an alternative, that we restore our basic freedoms as Americans, revitalize
our private enterprise system, and reassert America's sense of
destiny in the world.
This is the choice that we must make as a Nation in the
coming year. This is the choice that will preserve or cripple
our freedoms. This is the choice that will shape the lives of
our children and our children's children.
I have always believed that every public official must
take this as his highest goal: To turn over to our children
a nation that is stronger and better — that offers greater
opportunities for personal and spiritual fulfillment -- than
the nation we have inherited. I first came to Washington because -- as corny as it may seem -- I wanted to repay a small
amount of what this country has given me. And I am proud to
be there. But when I see the abuses that Washington has

inflicted and is continuing to inflict upon private enterDrise and upon our freedoms, I can only shudder about the
world
we are building for our children. I believe
that the time has come for new directions-to set the ship of state on a new course. And I believe the
American people know this. There is no question in my mind
that the people of this country want a fresh start, as the
President has said. But I also believe that we will make
the right choices about the future only if more of our citizens — Americans of strength and character like those of you
here tonight — are willing to fight for their convictions.
I urge you to stand up and be counted.
Thank you.
# # # # #

FOR IMMEDIATE RELEASE
REMARKS BY
JAMES N. SITES
SPECIAL ASSISTANT TO SECRETARY OF THE TREASURY
BEFORE THE
MARYLAND-DELAWARE-D.C. PRESS ASSOCIATION
SHERATON-FONTAINEBLEAU HOTEL
6:00 P.M., EDT, FRIDAY, SEPTEMBER 19, 1975
Nearly a year ago, I packed my papers and moved one
block from the National Press Building to Main Treasury to
work with William E. Simon on communicating to the nation
the basic facts on how America got into its awesome economic
troubles, and what it would take to get out. I soon began
to wonder how 1^ got into such a jam!
After 24 years in Washington reporting and communications
counseling, I thought I had a fair grasp of government
processes. As someone said, I would be playing the same
game in a different ballpark: But, no, I found that people
kept throwing bottles from the bleachers! Including the press....
Even so, I have finally concluded that if people knew
more, they would throw more.
The fact is that government is rapidly becoming the
foremost factor in our lives. And if it does not function
well, little else will.
So, tonight, I would like to talk about what I see as
the nation's greatest challenge of the next decade — and,
for that matter, for the rest of our lives: This is bringing
government's enormous expansion under control and making
government work in the best interests of the nation. And
because we at Treasury and the Economic Policy Board work
daily with the economic problems that so intimately affect
the state of the nation, I will concentrate on this area.
(more)

Hf6
Economics, as you know, has been called the dismal
science. And looking at those Four Horsemen of the
Economic Apocalypse — inflation, unemployment, high
interest rates and business turmoil — you can understand why.
Reporting in this crucial area has also been called
dismal. Yet, as economic issues have moved into Page One, I
myself have observed an enormous improvement in this regard
recently. There should be. For press coverage of economic
developments directly affects policy debates in Washington
and elsewhere — and can lead, as well, to sensible resolution
of that larger issue I mentioned of controlling Big Government.
This is the particular challenge before you who represent
the nation's press, for it's your government no less than mine.
I am reminded in this connection of the first use of that
telling phrase, the Fourth Estate, as attributed to a speech
in Commons by Edmund Burke, who said:
"There are three estates in Parliament, but in the
reporter's gallery yonder, there sits a Fourth Estate
more important far than...all. It is not a figure
of speech or witty saying; it is a literal fact, very
momentous to us in these times."
On the economic-political front, America may well be in
a race between knowledge and crisis, and the press will play
a decisive role in determining the outcome.
I know I don't have to tell you that the nation has worked
itself into a difficult economic situation today — even
though/ fortunately, we have turned the corner and are seeing
an encouraging improvement in production, sales and employment.
The big problem is inflationary pressures. And if Washington
fails to follow sensible fiscal and monetary policies now, it
could readily aggravate these pressures and plunge the nation
again into the same kind of boom-and-bust cycle we have just
gone through.
I won't belabor the causes of double-digit inflation.
Economists are generally in fair agreement on this point —
even though, as one wag put it, if you took all the economists
in the world and laid them end-to-end, they wouldn't reach
a conclusion!
People have been rocked in recent years by a quadrupling
of prices by the oil-producing nations, by crop setbacks that
triggered higher prices for farm products, by serious supply
shortages in key industries which resulted from our recent
(more)

-3-

-#//

bout with wage-price controls, by a simultaneous boom among
industrialized countries that boosted world commodity prices
and by two devaluations of the dollar that spurred increased
foreign demand for U.S. goods.
Then, on top of all these economic factors have come
subtle political pressures in the form of rising expectations
of the world's peoples for a better life — leading to
almost unlimited demands being placed on limited resources.
Now, look at the role federal policies have played in
this situation. To cite a few facts for background:
* Before the 1930s, government accounted for about 12
percent of our gross national output. Today, government at
all levels accounts for a full third of output. And if
present growth trends continue, this could top 50 percent by
the year 2000.
* Nearly one out of every five members of the work
force now works for government — federal, state and local.
In fact, the 15 million people on public payrolls make
government the largest single employer in the United States.
* Only 14 years ago the federal budget first reached
the $100-billion figure. Just four years ago, it topped the
$200-billion mark. Then, last year it passed $300-billion.
And this current year government is spending close to one
billion dollars each day.
While the vast expansion of government functions
represented by these spending totals is a problem in itself,
even more serious is the chronic failure of government to
make ends meet. In the past 15 years, the federal bureauracy
has run up deficits in 14 years — a miserable record of
profligacy. These huge deficits, combined with expansive
monetary policies, have added enormously to aggregate demand
for goods and services and have thus generated heavy upward
price pressures.
Moreover, as government moved into capital markets
and preempted vast sums to cover its deficits, interest rates
have climbed. This, in turn, has badly hurt home building,
which depends on low-cost mortgage money, as well as business
borrowing for expansion of plant and jobs and consumer credit
for purchases of autos and other major appliances.
We've thus seen posed for Washington policy-makers the
ultimate dilemma: You can no longer solve problems simply by
throwing a lot of money at them. Now dawns the hard
realization that the more money government spends, the more
severe our economic troubles become. It's like trying to
cure an alcoholic by plying (more)
him with manhattans.

-4And speaking of manhattans, what clearer example
could you find of the sad results of irresponsible spending
policies than in New York City? Those who would cast stones
at that city's misfortunes, however, should recognize that
the Federal Government is making the same mistakes that
brought on New York's crisis. The big difference is that
Washington, unlike New York, controls the printing presses
and can create new reams of inflated money to cover its
deficits.
Is anyone any longer deceived by this kind of fiscal
sleight of hand? I doubt it. People know full well that
there's no such thing as free government programs, any
more than there's such a thing as a free lunch. If we don't
have the courage and will to pay for government programs
in taxes, then we wind up paying in the cruelest and most
regressive tax of all — inflation.
As indicated earlier, politicians can hardly be held
solely responsible for inflation. Business, labor, education,
the professions all contribute their bit to the process.
And everyone would have to contribute his bit to the solution.
Few objectives are more urgent.
It's been said that inflation is like a country where
no one speaks the truth. The least able pay the bill for
inflation, whether they're out of work, retired, disabled or
dependent. For instance, at the 12 percent inflation rate
of last year, a person retiring on an income of $500 a month
would see his purchasing power cut in 10 years to a paltry $170.
Even at today's 7 percent inflation rate, the check's value
would be cut in 10 years nearly in half.
This is why President Ford and Treasury Secretary Simon
and other Administration leaders have repeatedly emphasized
that even while we do our utmost to get the economy moving
and get people back to work, we must not give up our
simultaneous battle against inflation as our most critical
long-range threat. And I hope that you, the press, will not
hesitate to tell that like it is — that the path to economic
trouble is paved with government deficit spending — that more
consume-now-pay-later short-cuts to satisfaction in Washington
can only mean a short-cut to crisis.
Another critical area where you can help to better inform
the nation lies in spelling out the real sources of jobs
and high living standards. Expansion of productive plant and
an increase in production efficiency is the only way to
increase jobs, curb inflation, raise living standards and
assure our ability to compete
on world markets. And this can
(more)
come about only through greater investment in expanded and

-5-

*//3

modernized facilities. This is why Bill Simon stresses the
need for tax changes and other policy approaches to shift
the nation from overconsumption to increased savings and
capital formation. We need to provide 3 million additional
jobs right now to regain full employment — then 2 million
more a year until 1980 to take care of new workers coming
into the labor force, then 1-1/2 million a year thereafter.
The private sector still provides over 80 percent of
jobs in the nation, and badly needs help in generating
profit and channeling a greater flow of funds into investment.
Isn't this a better way to expand employment than through
big new government spending programs?
As America celebrates its 200th birthday, we need to
rededicate ourselves to the kind of self-reliance, self-help,
and self-determination that sparked our nation's dynamic
growth and development. If we really want to bring government
expansion and irresponsible spending policies under control,
we will have to stop demanding that government step in every
time a new problem arises and "do something." People will
have to get back to doing it themselves. Otherwise, the
economy may find itself strangled by red tape and foundering
in red ink.
Perhaps, beholding how efficiently government processes
43 million checks each month, we have become victims of
overexpectations of what government is capable of doing
in the more complex social areas. Take it from one who has
seen the bureaucracy work at first hand, Big Government is
simply not that effective, cannot be, and cannot be expected
to be. It is no match for the ingenuity and dynamism of
free people who are allowed to innovate, to work, to excel
and to determine their own destiny.
The private enterprise system is unquestionably facing
its most serious threat since the 1930s. Shocks of energy
price increases and rampant inflation have shaken the entire
world, produced widespread turbulence, and driven the
desperate more and more to government for saving measures.
Yet, if we ourselves succumb to this temptation, it will
mean still more central controls over the functioning of our
economy and still more government spending programs. And as
these new government actions further foul up the workings of
the private sector, demands will arise for still further
government intervention.
Then, as government taxes more and more of a worker's
income, at what point will he(more)
lose motivation to work and decide,
instead, to become a non-contributing recipient of public aid?

Hit
And at what point does business decide that with all
the government controls over its operations and limitations
on its ability to make a profit, it's just not worth the
candle?
And at what point does government stifle innovation and
wreck the dreams of those who would found the IBMs and
Xeroxes, the great newspapers and broadcast stations, of
tomorrow?
Indeed, looking at the natural propensity of politicians
to vote new programs, and, in effect, to spend someone else's
money, you wonder if the democratic system has built into it
the seeds of its own self-destruction.
Well, this scenario does not have to happen. As we
stand at this crossroads, let's ask pointedly whether that
really is the direction we want America to travel. If we
are to avoid a lemming-like march into the sea, people will
have to start demanding — and getting — balanced budgets,
a hold-down on new government regulation and the kind of tax
policies that will encourage initiative and expansion.
An encouraging sign of hope in this respect came out
of this week's Southern Governors Conference in Florida.
There, 13 top state executives, expressing "unified and deep
concern over the adverse economic impact of both the ever-growing
size of the Federal Budget and this nation's chronic pattern of
deficit spending," called for adoption of a constitutional
amendment that would require the Federal Government to match
revenues against outlays over a "multi-year period" that would
allow for business-cycle downturns and national emergencies.
The road of renewed responsibility on economic policies
can also lead to a badly needed renewal of people's confidence
in their government. Poll after poll shows marked deterioration
in the public's mood, loss of credibility in all our major
institutions, and a longing by people for a return to integrity
and responsibility. I would suggest that a great start in
this direction lies in what Bill Simon has well said:
"We must stop promising people more than we can
deliver — and we must deliver what we promise."
It is also clear that we cannot cure a decade of sins by
one day's penance. Correction will take time and uncharacteristic
patience. What the President has been trying to do this year
in holding the lid on government spending needs to be continued
for a long time. In fact, I could not imagine a healthier
development for the nation's economy — and for all the hopes
(more)
that people place on the state
of that economy.

-7-

U/<9

I would hope that you who influence so intimately
the course of political action in America would dedicate
yourselves to the resolution of this momentous challenge
of reining in on runaway government. Our future depends
on it...•

-0O0-

ADDRESS BY THE HONORABLE WILLIAM E. SIMON
SECRETARY OF THE TREASURY
TO THE DELAWARE BICENTENNIAL CELEBRATION
DOVER, DELAWARE, SEPTEMBER 20, 1975

GOVERNOR TRIBBITT, SENATORS ROTH AND BIDEN, MEMBERS OF
CONGRESS, MAYOR CARROLL, DISTINGUISHED GUESTS, AND LADIES
AND GENTLEMEN:

IT IS A HIGH PERSONAL HONOR FOR ME TO JOIN YOU AT THESE
FESTIVITIES AND TO BRING YOU THE WARMEST GREETINGS OF THE
PRESIDENT OF THE UNITED STATES,

THE NATION'S EYES TODAY ARE UPON DELAWARE, ACROSS THE
LAND, THIS IS AFFECTIONATELY KNOWN AS "THE FLRST STATE"

~

THE FIRST STATE IN THE UNION TO RATIFY THE CONSTITUTION, THE
FIRST STATE WHERE THE AMERICAN FLAG WAS UNFURLED DURING A
REVOLUTIONARY BATTLE, AND THE STATE WHOSE SOLDIERS WERE
WIDELY THOUGHT TO BE FIRST AND FOREMOST AMONG THE COLONIAL
REGIMENTS. OVER THE PAST SEVERAL YEARS, I MIGHT ADD, YOUR
CONGRESSIONAL DELEGATION HAS ALSO BEEN AMONG THE FINEST IN

WASHINGTON.

SO IT IS CERTAINLY APPROPRIATE THAT TODAY

DELAWARE ALSO BECOMES ONE OF THE FIRST STATES TO INAUGURATE
THE NATION'S BICENTENNIAL CELEBRATION,

YOU WILL HEAR MUCH DURING THIS BICENTENNIAL YEAR ABOUT
THE GRANDEUR OF AMERICA. THERE WILL BE COUNTLESS TALES OF
THE WAY THAT SMALL, FLEDGING COMMUNITIES CARVED A HOME OUT
OF THE WILDERNESS. YOU WILL HEAR AGAIN HOW A NEW NATION WAS
FORGED IN THE FLAMES OF WAR, UNITING MEN AND WOMEN FROM
MANY FOREIGN LANDS. FROM THAT EARLY MELTING POT -- THAT
SPILLED ACROSS THE PRAIRIES AND WAS CONTINUALLY ENRICHED
BY NEW WAVES OF IMMIGRANTS — AROSE THE GIANT THAT WE KNOW
TODAY: THE MIGHTIEST NATION ON EARTH, A NATION THAT HAS
UNLOCKED THE SECRETS OF ABUNDANCE AND PLENTY, AND A NATION
THAT HAS BEEN FAVORED BY THE BLESSINGS OF THE CREATOR.

THESE ARE THE FAMILIAR TALES OF OUR PAST AND THEY
WILL BE RETOLD MANY TIMES IN STORY AND SONG. YET AS THE
STORIES OF OUR GROWTH AND PROSPERITY ARE REMEMBERED, I WOULD
HOPE THAT YET ANOTHER THEME WILL ALSO BE SOUNDED, FOR WITHOUT
IT, AMERICA WOULD NOT BE THE LAND WE LOVE SO WELL. TO ME,
THAT THEME IS THE CENTERPIECE OF OUR HISTORY, THE BRIGHTEST
STAR IN OUR FIRMAMENT.

ALL OF YOU KNOW IT WELL, BUT IN TODAY'S WORLD, WE MUST
t

CONTINUALLY REMIND OURSELVES OF ITS LIVING REALITY, THAT
THEME IS SIMPLY THIS: OUR COVENANT AS A PEOPLE THAT IN THIS
LAND, FREEDOM AND INDEPENDENCE SHALL REIGN, HERE, SIR, THE
PEOPLE GOVERN. No TYRANT, WHETHER HE SPRINGS FROM OUR OWN
OR FOREIGN SOIL, SHALL RULE AMERICA. No SYSTEM OF GOVERNMENT
SHALL BE ALLOWED TO OPPRESS US AS A PEOPLE, To US, GOVERNMENTS DERIVE THEIR JUST POWERS FROM THE CONSENT OF THE
GOVERNED, AND WE INSIST THAT OUR GOVERNMENT BE OF THE PEOPLE,
BY THE PEOPLE, AND FOR THE PEOPLE.

THESE ARE NOT MERE SLOGANS.

THEY HAVE HAD A FLESH-

AND-BLOOD MEANING FROM THE EARLIEST COLONIAL DAYS UNTIL NOW.

THINK BACK FOR A MOMENT TO THE THREE PATRIOTS FROM
DELAWARE WHO SIGNED THE DECLARATION OF INDEPENDENCE IN 1776.
EACH OF THEM KNEW THAT HE WOULD BE BRANDED AS A TRAITOR BY
THE BRITISH AND THAT HE AND HIS FAMILY WOULD NO LONGER BE
SAFE, THEIR LIVES SHOWED, AS DID THOSE OF THE OTHER MEN IN
PHILADELPHIA, THAT SIGNING THE DECLARATION WAS NOT JUST AN
ACT OF WISDOM; IT WAS ALSO AN ACT OF COURAGE.

THINK OF THOMAS MCKEAN (MC-KEEN) OF NEW CASTLE COUNTY,

ONE OF THE EARLIEST BATTLERS FOR INDEPENDENCE. IN 1770, HE
WROTE TO JOHN ADAMS THAT SINCE SIGNING THE DECLARATION THREE
YEARS EARLIER, HE HAD BEEN "HUNTED LIKE A FOX BY THE ENEMY."
FIVE TIMES HE WAS COMPELLED TO MOVE HIS FAMILY TO PLACES OF
GREATER SAFETY, UNTIL AT LAST THEY FOUND REFUGE IN A LITTLE
LOG-HOUSE ON THE BANKS OF THE SUSQUEHANNA.

- b -.
THINK OF GEORGE READ, THE FIRST ATTORNEY GENERAL OF
THIS STATE, WHO WAS EVEN MORE ARDENTLY PURSUED AFTER HE
SIGNED THE DECLARATION. ON ONE OCCASION, WHILE HE AND HIS
FAMILY WERE CROSSING THE DELAWARE RlVER, THEIR SMALL BOAT
WAS CAPTURED AND BOARDED BY THE BRITISH. ONLY BY ARTFULLY
DECEIVING THE ROYAL NAVY THAT HE WAS A LOYALIST COUNTRY
GENTLEMAN DID GEORGE READ ESCAPE.

OR THINK OF CAESAR RODNEY WHO LIVED ONLY TWO BLOCKS
FROM HERE IN DOVER. HE BADLY NEEDED MEDICAL TREATMENT FROM
ABROAD IF HE WERE TO HAVE ANY HOPE OF PROLONGING HIS LIFE,
AND HE KNEW THAT TO VOTE FOR INDEPENDENCE WOULD CUT HIM OFF
FROM DOCTORS IN THE BRITISH ISLES. BUT WHEN THE ISSUE OF
FREEDOM WAS SQUARELY PRESENTED, CAESAR RODNEY MOUNTED HIS
HORSE IN DOVER AND RODE ALL NIGHT TO PHILADELPHIA — 80 MILES
THROUGH A THUNDERSTORM ~ SO THAT HE COULD JOIN IN DECLARING
THE LIBERTY AND INDEPENDENCE OF THE COLONIES.

TO ME, THIS IS THE SPIRIT OF '76 -- THE SPIRIT IN WHICH
THOSE EARLY PATRIOTS, IN THE WORDS OF THE DECLARATION,
PLEDGED TO EACH OTHER THEIR LIVES, THEIR FORTUNES, AND
THEIR SACRED HONOR.

IN THE HALLS OF THE WHITE HOUSE TODAY, ONLY A FEW STEPS
FROM THE OVAL OFFICE, THERE HANGS ONE OF THE MOST FAMOUS
PAINTINGS OF EARLY AMERICA. IT DEPICTS THE DELEGATES OF
EACH COLONY WORKING ON THE DECLARATION OF INDEPENDENCE IN
JULY OF 1776.

AS PEOPLE PASS BY THAT PORTRAIT TODAY, ONE OF THE FIRST
THINGS THEY NOTICE IS THAT MANY OF THE FACES ARE BLANK AND
MUCH OF THE PICTURE IS LEFT UNPAINTED. WHY IS IT BLANK,
THEY ASK. WHY IS IT UNFINISHED?

ONE ANSWER, I WOULD SUGGEST, IS THIS: BECAUSE THE
WORK OF OUR FOUNDING FATHERS IS UNFINISHED. THE JOB OF
PRESERVING AND EXTENDING OUR FREEDOM MUST STILL GO FORWARD.

- 7 - •

- - -

"THE AMERICAN WAR IS OVER," AS ONE COLONIALIST SAID
AFTER THE BRITISH SURRENDERED, "BUT THIS IS FAR FROM BEING
THE CASE WITH THE AMERICAN REVOLUTION. .,. IT REMAINS
YET TO ESTABLISH AND PERFECT NEW FORMS OF GOVERNMENT..."

LADIES AND GENTLEMEN, THAT REMAINS OUR FOREMOST TASK
TODAY: TO CONTINUE THE WORK OF THE EARLY PATRIOTS, TO FORM
A MORE PERFECT UNION SO THAT AS FREE AMERICANS WE MAY LIVE
TOGETHER IN HAPPINESS AND IN PEACE.

THE HAPPINESS TO WHICH WE ASPIRE IS NOT OURS BY DIVINE
RIGHT. JUST AS THE REVOLUTION DEMANDED SACRIFICE AND
STRUGGLE, SO NOW MUST WE COMMIT OUR FULL ENERGIES AND
ATTENTIONS TO BUILDING A BETTER AMERICA. OUR CHALLENGES
TODAY ARE MORE COMPLEX, THEY ARE NOT AS CLEAR CUT, BUT THEY
ARE EVERY BIT AS DEMANDING. WE MUST OVERCOME THE MANY FLAWS
IN OUR SOCIAL STRUCTURE. WE MUST END A LONG PATTERN OF
ABUSES OF OUR ECONOMIC SYSTEM, ABUSES WHICH HAVE GIVEN US

-8-.

U¥>

UNPARALLELED INFLATION AND THE MANY HUMAN HARDSHIPS THAT
HAVE ACCOMPANIED OUR RECESSION. WE MUST PROVIDE EVERY INDIVIDUAL, REGARDLESS OF RACE OR SEX OR ETHNIC BACKGROUND, WITH
AN EQUAL CHANCE AT THE STARTING LINE, AND WE MUST INSURE
THAT AS WE GO ABOUT OUR WORK, WE DO NOT TRADE OUR HARDEARNED PERSONAL FREEDOMS TO OUR GOVERNMENT IN EXCHANGE FOR
ILLUSORY PROMISES OF GREATER SECURITY AND COMFORT.

AS ONE WHO HAS HAD THE PRIVILEGE OF WORKING IN OUR
GREATEST FINANCIAL CENTER AS WELL AS IN THE CENTER OF OUR
DEMOCRACY, I CANNOT EMPHASIZE TOO STRONGLY MY OWN BELIEF
THAT PROSPERITY AND FREEDOM GO HAND-IN-HAND. WE CANNOT
ENJOY THE FRUITS OF ONE WITHOUT MAINTAINING THE OTHER. SHOW
ME A PEOPLE WHO HAVE FORFEITED THEIR ECONOMIC FREEDOMS,
AND I SHALL SHOW YOU A PEOPLE WHO HAVE ALSO BEEN ENSLAVED
BY THEIR RULERS.

FROM SOME OF THE MOST POWERFUL PEOPLE IN THE UNITED
STATES TODAY YOU HEAR THAT OUR PROBLEMS CAN ONLY BE SOLVED

//M
- 9 BY MASSIVE GOVERNMENTAL CONTROL OVER OUR LIVES. THE BELIEF
THAT AMERICANS CAN AND SHOULD SOLVE MANY OF THEIR PROBLEMS
FOR THEMSELVES — AND THAT, INDEED, MOST AMERICANS PREFER
TO LIVE THAT WAY — IS DISMISSED AS WISHFUL THINKING, NOSTALGIC
SENTIMENTALITY FOR A WAY OF LIFE THAT IS NO LONGER RELEVANT
TO TODAY'S NEEDS,

I SAY TO YOU THAT THE SPIRIT OF FREEDOM IS THE MOST
PRECIOUS PART OF OUR HERITAGE AND MUST BE PRESERVED ABOVE
ALL ELSE. IT IS ONLY THROUGH A FREE SOCIETY THAT WE SHALL
ALSO BE A PEACEFUL AND PROSPEROUS SOCIETY. THE MEN AND
WOMEN OF THIS LAND STILL YEARN FOR THE LIBERTY — AS WELL AS
THE RESPONSIBILITY — TO SHAPE THEIR OWN LIVES AND DESTINIES.
i

THE TRUTHS BY WHICH OUR FOREFATHERS LIVED ARE AS VALID TODAY
AS THEY WERE YESTERDAY; MASSIVE GOVERNMENTAL INTERVENTION IS
NO MORE ACCEPTABLE NOW THAN IT WAS THEN.

IN THOSE EARLY YEARS, THE COLONIALISTS KNEW THAT IF
THEIR ECONOMIC FREEDOMS WERE LOST, THEIR POLITICAL FREEDOMS

WOULD ALSO BE SMASHED.

AND SO THEY REBELLED:

AGAINST THE

SUGAR ACT, THE STAMP ACT, THE TEA ACT, AND A HOST OF OTHER
INFRINGEMENTS UPON THEIR ECONOMIC AND POLITICAL LIFE. AND
IN THE DECLARATION OF INDEPENDENCE, THEY SPELLED OUT THEIR
GRIEVANCES IN AN ELOQUENCE THAT SHOOK THE WORLD. THEY COULD
NO LONGER TOLERATE, THEY SAID:

-- ACTIONS BY THEIR RULERS WHICH "ERECTED A MULTITUDE
OF NEW OFFICES, AND SENT SWARMS OF OFFICERS TO HARASS OUR
PEOPLE,,."

— ACTIONS BY THE CENTRAL GOVERNMENT TO IMPOSE BURDENSOME
TAXES ON US "WITHOUT OUR CONSENT;"

~ AND ACTIONS THAT WERE "ALTERING FUNDAMENTALLY OUR
FORMS OF GOVERNMENT.,."

EACH OF THESE WERE AMONG THE LONG TRAIN OF "REPEATED
INJURIES AND USURPATIONS" THAT THOMAS JEFFERSON ENUMERATED
IN THE DECLARATION OF INDEPENDENCE.

YET, WHEN YOU THINK ABOUT THEM, HOW DIFFERENT ARE THEY
FROM THE CONCERNS THAT WE HAVE TODAY WITH THE ARMY OF
FEDERAL REGULATORS WHO HAVE GATHERED ALONG THE POTOMAC
RIVER? DO CITIZENS TODAY NOT FEEL THAT THEY ARE BURDENED
WITH A TAX SYSTEM OVER WHICH THEY HAVE LITTLE REAL CONTROL?
DO THEY NOT FEEL THAT THE POWER AND AUTHORITY OF OUR STATES
HAS WITHERED AS THE POWER OF OUR CENTRAL GOVERNMENT HAS
INCREASED? AND ARE NOT OUR ECONOMIC HOPES AMONG THE FOREMOST
CONCERNS OF OUR PEOPLE TODAY, JUST AS THEY WERE TWO HUNDRED
YEARS AGO?

THE ANSWERS ARE CLEAR, AND EQUALLY CLEAR IS THE NEED
OF PRESSING FORWARD IN THE SPIRIT OF '76 — TO RESURRECT AND
EXTEND THE BOUNDARIES OF LIBERTY, TO MAINTAIN EFFECTIVE
INSTRUMENTS OF GOVERNMENT WHERE THEY ARE NEEDED BUT TO
ALTER AND ABOLISH THEM WHERE THEY ARE NO LONGER NECESSARY OR
WHERE THEY INTRUDE TOO DEEPLY INTO OUR CHERISHED PERSONAL
FREEDOMS.

. i2 .

4#

YOUR GOVERNMENT IN WASHINGTON TODAY IS MOST DISTRESSED
BY THE CONDITIONS THAT NOW EXIST IN OUR ECONOMY. WE HAVE
ACTED IN A WAY THAT WE THINK WILL BE EFFECTIVE TO REVIVE THE
ECONOMY WITHOUT GENERATING ANOTHER RUINOUS WAVE OF INFLATION.
WE SHALL CONTINUE TO ACT AS CONDITIONS WARRANT. WE SHALL
CONTINUE TO BE GENEROUS TOWARD THOSE WHO ARE UNABLE TO
DEFEND THEMSELVES AGAINST THE RAVAGES OF INFLATION AND
RECESSION, BUT WE BELIEVE THAT IT IS RIGHT AND THAT IT IS
WISE TO RESIST THE TEMPTATIONS TO INTERVENE MASSIVELY AS
SOME URGE UPON US. To INCREASE GOVERNMENT SPENDING DRAMATICALLY,
TO FLOOD THE MARKETS WITH NEW CURRENCY, TO IMPOSE NEW WAGE
AND PRICE CONTROLS, TO WRAP OUR ECONOMY IN A GOVERNMENTAL
STRAIT-JACKET — EACH OF THESE ACTIONS WOULD ULTIMATELY
BURDEN YOU, THE AMRICAN PEOPLE, WITH FUTURE HARDSHIPS AND
WOULD ROB YOU OF EVEN MORE OF YOURTREEDOM. THIS WE MUST
NOT AND SHALL NOT DO.

IF F R E E D O M

IS T O B E P R E S E R V E D

IN T H I S

NATION,

T H E N WE

MUST ACT DECISIVELY TO MAINTAIN AND PROTECT IT. IT MUST NOT
SLIP QUIETLY FROM OUR GRASP OR CONTINUALLY BE CHIPPED AWAY,

BIT BY BIT, UNTIL OUR FOUNDATIONS COLLAPSE. AS JAMES MADISON
TOLD THE VIRGINIA CONVENTION OF HIS DAY, "THERE ARE MORE
INSTANCES OF THE ABRIDGMENT OF FREEDOM ... BY GRADUAL AND
SILENT ENCROACHMENTS OF THOSE IN POWER THAN BY VIOLENT AND
SUDDEN" ACTIONS OF THE GOVERNMENT. THAT IS THE DANGER IN
WHICH WE STAND TODAY: THAT WE WILL BE MISLED ONCE AGAIN
INTO BELIEVING WE CAN OBTAIN A SAFER AND MORE SECURE FUTURE
BY SACRIFICING BITS AND PIECES OF OUR FREEDOM, THAT THE
HERITAGE WON FOR US ON BATTLEFIELDS STRETCHING FROM BUNKER
HILL TO HAMBURGER HILL AND SECURED FOR US BY GENERATIONS OF

TOIL WILL NOW BE SOLD FOR A MESS OF POTAGE. IF WE SUCCUMB
TO THAT TEMPTATION — IF WE RETREAT DOWN THAT ROAD — WE
SHALL FIND AT THE END NEITHER COMFORT NOR FREEDOM; WE SHALL
FIND ONLY THE END OF THE AMERICAN DREAM.

-M -

J#1

THAT NEED NOT BE THE CASE. THE DIE IS NOT YET CAST.
BUT A TIME OF DECISION IS SURELY HERE, EACH OF US IS
CALLED UPON TO CHOOSE THE ROAD INTO THE FUTURE.

TWO CENTURIES AGO, AFTER THE LONG AND ARDUOUS CONSTITUTIONAL
CONVENTION HAD ENDED IN PHILADELPHIA, BENJAMIN FRANKLIN AROSE
AND POINTED TO THE CHAIR WHERE GENERAL WASHINGTON HAD
BEEN PRESIDING,

ON WASHINGTON'S CHAIR WAS THE DESIGN OF A SUN LOW ON
THE HORIZON, AND MANY OF THE DELEGATES HAD WONDERED WHETHER
IT WAS A RISING OR A SETTING SUN,

"WE KNOW NOW," FRANKLIN TOLD THE DELEGATES, "IT IS A
RISING SUN AND THE BEGINNING OF A GREAT NEW DAY FOR AMERICA."

LET THIS BICENTENNIAL YEAR BE THE BEGINNING OF ANOTHER GREAT
NEW DAY FOR AMERICA. LET THIS BIRTHDAY CELEBRATION BRING A RESURRECTION

OF THE SPIRIT OF AMERICA. AND LET THE MOTTO THAT YOU

- 15 CHOSEN FOR THIS GREAT STATE OF DELAWARE — "LIBERTY AND
INDEPENDENCE" — RING FORTH ONCE AGAIN ACROSS THE LAND.

THANK YOU AND GOD SPEED.

# # #

vDepartmentoftheJREASURY
NGTON, D.C. 20220

TELEPHONE 964-2041

J/S/
FOR IMMEDIATE RELEASE

September 22, 1975

RESULTS OF TREASURY'S WEEKLY BILL AUCTIONS
Tenders for $2.7 billion of 13-week Treasury bills and for $2.8 billion
of 26-week Treasury bills, both series to be issued on September 25, 1975,
were opened at the Federal Reserve Banks today. The details are as follows:
RANGE OF ACCEPTED
13-week bills
COMPETITIVE BIDS: maturing December 26, 1975

High
Low
Average

Price

Discount
Rate

98.399
98.382
98.386

6.265%
6.331%
6.316%

Investment
Rate 1/
6.47%
6.54%
6.53%

26-week bills
maturing March 25, 1976
Price

Discount
Rate

96.564 a/
96.547
96.550

6.796%
6.830%
6.824%

Investment
Rate 1/
7.16%
7.19%
7.19%

a/ Excepting 1 tender of $595,000
Tenders at the low price fo.: the 13-week bills were allotted 21%.
Tenders at the low price for the 26-week bills were allotted 76%.
TOTAL TENDERS RECEIVED AND ACCEPTED BY FEDERAL RESERVE DISTRICTS:
District

Received

52,825,000
Boston
$
New York
- ,733,490,000
32,235,000
Philadelphia
92,460,000
Cleveland
45,140,000
Richmond
53,225,000
Atlanta
258,080,000
Chicago
64,460,000
St. Louis
34,820,000
Minneapolis
30,985,000
Kansas City
43,665,000
Dallas
165,495,000
San FranciscoTOTALS^4' 606,880,000

Accepted
$
33,335,000
2,181,480,000
31,230,000
54,060,000
30,560,000
36,735,000
139,080,000
46,065,000
14,475,000
30,485,000
19.470,000
83,795,000

Received
111 ,465,000
4,494 ,400,000
42 ,375,000
141 ,180,000
50 ,295,000
38 ,935,000
253 ,100,000
53 ,110,000
54 ,095,000
29 ,970,000
25 ,055,000
317 ,950,000

$2,700,770,000\_l $5,611,930,000

Accepted
13,715,000
2,506,860,000
10,125,000
38,780,000
15,515,000
20,935,000
57,690,000
34,720,000
7,095,000
22,970,000
14,055,000
61,350,000
$2,803,810,000 __l

y Includes $458,800,000 noncompetitive tenders from the public.
£/ Includes $239,465,000 noncompetitive tenders from the public.
__/ Equivalent coupon-issue yield.

Contact:

H.V. Hervey
x2256
September 22, 1975

FOR IMMEDIATE RELEASE

TREASURY ANNOUNCES DETERMINATION
OF SALES AT NOT LESS THAN FAIR VALUE
ON RADIAL BALL BEARINGS, EXCLUDING THOSE WITH INTEGRAL
SHAFTS, WITH AN OUTER DIAMETER OF 9mm AND OVER
BUT NOT OVER 100mm, FROM JAPAN
Assistant Secretary of the Treasury David R. Macdonald
announced today a determination that radial ball bearings,
excluding those with integral shafts, with an outer diameter
of 9mm and over but not over 100mm, from Japan, are not being,
nor are likely to be, sold at less than fair value within
the meaning of the Antidumping Act, 1921, as amended. Notice
of this decision will appear in the Federal Register of
September 23, 1975.
A Notice of Tentative Negative Determination was
published in the Federal Register of June 23, 1975.
Comparisons between purchase price or exporter's sales
price and home market price revealed that purchase price or
exporter's sales price was equal to or higher than the home
market price of such or similar merchandise.
During calendar year 1974, imports of the subject
merchandise from Japan were valued at approximately $74
million.

oOo

FOR RELEASE AT 4:00 P.M.

September 23, 1975

TREASURY'S WEEKLY BILL OFFERING
The Department of the Treasury, by this public notice, invites tenders for
two series of Treasury bills to the aggregate amount of $6,100,000,000 >
thereabouts, to be issued October 2, 1975,

or

as follows:

92-day bills (to maturity date) in the amount of $3,000,000,000»

or

thereabouts, representing an additional amount of bills dated July 3, 1975,
and to mature January 2, 1976

(CUSIP No. 912793 YM2), originally issued in

the amount of $2,701,100,000, the additional and original bills to be freely
interchangeable.
182-day bills, for $3,100,000,000, or thereabouts, to be dated October 2, 1975,
and to mature April 1, 1976

(CUSIP No. 912793 ZA7).

The bills will be issued for cash and in exchange for Treasury bills maturing
October 2, 1975,

outstanding in the amount of $5,401,380,000, of which

Government accounts and Federal Reserve Banks, for themselves and as agents of
foreign and international monetary authorities, presently hold $2,763,205,000.
These accounts may exchange bills they hold for the bills now being offered at
the average prices of accepted tenders.
The bills will be issued on a discount basis under competitive and noncompetitive bidding, and at maturity their face amount will be payable without
interest.

They will be issued in bearer form in denominations of $10,000,

$15,000, $50,000, $100,000, $500,000 and $1,000,000 (maturity value), and in
book-entry form to designated bidders.
Tenders will be received at Federal Reserve Banks and Branches up to
one-thirty p.m., Eastern Daylight Saving time, Monday, September 29, 1975.
Tenders will not be received at the Department of the Treasury, Washington.
Each tender must be for a minimum of $10,000.
multiples of $5,000.

Tenders over $10,000 must be in

In the case of competitive tenders the price offered must

be expressed on the basis of 100, with not more than three decimals, e.g., 99.925.
fractions may not be used.
Banking institutions and dealers who make primary markets in Government

(OVER)

securities and report daily to the Federal Reserve Bank of New York their positions
with respect to Government securities and borrowings thereon may submit tenders
for account of customers provided the names of the customers are set forth in
such tenders.
own account.

Others will not be permitted to submit tenders except for their
Tenders will be received without deposit from incorporated banks

and trust companies and from responsible and recognized dealers in investment
securities.

Tenders from others must be accompanied by payment of 2 percent of

the face amount of bills applied for, unless the tenders are accompanied by an

^

express guaranty of payment by an incorporated bank or trust company.
Public announcement will be made by the Department of the Treasury of the
amount and price range of accepted bids.

Those submitting competitive tenders

will be advised of the acceptance or rejection thereof.

The Secretary of the

Treasury expressly reserves the right to accept or reject any or all tenders,
in whole or in part, and his action in any such respect shall be final. Subject
to these reservations, noncompetitive tenders for each issue for $500,000 or less
without stated price from any one bidder will be accepted in full at the average
price (in three decimals) of accepted competitive bids for the respective issues.
Settlement for accepted tenders in accordance with the bids must be made or
completed at the Federal Reserve Bank or Branch on

October 2, 1975,

in cash or

other immediately available funds or in a like face amount of Treasury bills
maturing
ment.

October 2, 1975.

Cash and exchange tenders will receive equal treat-

Cash adjustments will be made for differences between the par value of

maturing bills accepted in exchange and the issue price of the new bills.
Under Sections 454(b) and 1221(5) of the Internal Revenue Code of 1954. the
amount of discount at which bills issued hereunder are sold is considered to
accrue when the bills are sold, redeemed or otherwise disposed of, and the bills
are excluded from consideration as capital assets.

Accordingly, the owner of

bills (other than life insurance companies) issued hereunder must include in his
Federal income tax

return, as ordinary gain or loss, the difference between

the price paid for the bills, whether on original issue or on subsequent purchase,
and the amount actually received either upon sale or redemption at maturity
during the taxable year for which the return is made.
Department of the Treasury Circular No. 418 (current revision) and this notice,
prescribe the terms of the Treasury bills and govern the conditions of their
issue.
Branch.

Copies of the circular may be obtained from any Federal Reserve Bank or

FOR IMMEDIATE RELEASE
MEMORANDUM FOR CORRESPONDENTS:

September 23, 1975

Secretary of the Treasury William E. Simon announced today
that an evaluation of the Secret Service protective intelligence
function has been intensified as a result of the two recent
alleged assassination attempts on the President. In this connection,
an outside evaluation of protective intelligence procedures has
been redirected toward these incidents.
He said that over the years since the Warren Commission first
made its recommendations in 1964, the Treasury Department and the
Secret Service have had numerous outside organizations (including
psychiatric, criminal, behavioral psychologists and other specialists from the academic and Government community) review all aspects
of the Secret Service protective function.
To give some perspective to the magnitude of the task facing
the Secret Service, the Secretary noted that the Secret Service
in a normal year screens 200,000 pieces of information regarding
persons of possible protective interest; as a result of this input,
it interviews 4,000 people in connection with its protective
responsibilities; it arrests approximately 60 people as a result of
distinct threats ;made against protected officials; identifies 275300 people who merit special attention in connection with each
trip of a protected official.
Secretary Simon noted that "in striving to perfect procedures,
neither the Secret Service nor we at Treasury are ever satisfied
with the job we are doing in this area, and this is particularly
true when two back-to-back incidents like this occur. The public
can be sure that the Secret Service will continue to operate in as
effective a manner as is humanly possible in a free society."

oOo

IS «*>
a> ,-1
•_z 10

federal financing bank

5 <?
o- «•

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WASHINGTON, D.C. 20220

FOR IMMEDIATE RELEASE

«/> <*
co CM
_ O
,*- CM

September 24, 1975

Summary of Lending Activity V J' ^
September 1 - September 15, 1975
Federal Financing Bank lending activity for the period
September 1 through September 15, 19 75 was announced as
follows by Roland H. Cook, Secretary:
The Bank made the following advances to borrowers guaranteed
by the Department of Defense under the Foreign Military Sales
Act:
Interest
Date
Borrower
Amount
Rate
Maturity
9/2 Government of
9/3
Government
9/5
Government
9/15
Government
9/15
Government
The FFB made
guaranteed by the

Brazil
$ 8,451,193 8.050% 3/15/84
of Greece
30,000,000 8.385% 7/ 1/85
of the Philippines
2,000,000 8.405% 12/31/81
of Brazil
1,258,132 8.050% 3/15/84
of Korea
7,596,614 8.675% 6/30/83
the following loans to utility companies
Rural Electrification Administration:

Date

Borrower

Amount

Interest
Rate

Maturity

9/2 United Telephone Co.
(Wisconsin)

$2,167,500 8.510%

12/31/09

9/2 St. Joseph Telephone §
Telegraph Co. (Florida)

1,220,037

7.976%

9/ 3/77

9/2 Oglethorpe Electric
Membership Ass'n (Georgia)

7,187,000

8.510%

12/31/09

9/5 Murraysville Telephone Co.
(Pennsylvania)

891,935

8.568%

12/31/09

9/5 United Power Ass'n
(Minnesota)

2,900,000

8.568%

12/31/09

9/8 Doniphan Telephone Co.
(Arkansas)

432,668

8.622%

12/31/09

(Over)

$1
9/10

- 2Colorado-Ute Electric
Association

$2,800,000

8.132%

9/12/77

9/12 Tri-State Generation $ 2,469,000 8.544% 7/15/78
Transmission Ass'n
(Colorado)
Interest payments are made quarterly on the above REA loans.
The US Railway Association made three drawings against its
line of credit with the Bank:
Date

Amount

Interest
Rate

Maturity

9/2
9/11
9/15

$25,000,000
1,500,000
4,500,000

6.671%
6.697%
6.744%

11/24/75
11/24/75
11/24/75

On September 2, the Student Loan Marketing Association
borrowed $35 million from the FFB at an interest rate of 6.71%.
The loan matures November 18, 1975.
The Export Import Bank borrowed $670 million from the FFB
on September 2:
Amount Interest Rate Maturity
$170,000,000 8.320% 3/1/79
500,000,000

8.375%

9/1/79

On September 10, the General Services Administration
borrowed $2,543,127.28 against its $107 million commitment
with the Bank. The interest rate is 8.745%. The loan matures
November 15, 2004.
On September 15, Amtrak, the National Railroad Passenger
Corporation made a $20 million drawing against its line of
credit which matures December 1, 1975. The interest rate is
6.792%.
On September 15, the Tennessee Valley Authority borrowed
$30 million from the Bank at an interest rate of 6.785%.
loan matures December 31, 1975.

The

Federal Financing Bank loans outstanding on September 15, 1975
totalled $15 billion.
#

# &

FOR IMMEDIATE RELEASE

September 24, 1975

RESULTS OF AUCTION OF 29-MONTH TREASURY NOTES
The Treasury has accepted $2.0 billion of the $3.9 billion of
tenders received from the public for the 29-month notes, Series G-1978,
auctioned today.
The range of accepted competitive bids was as follows:
Lowest yield 8.05% 1/
Highest yield 8.13%
Average yield 8.10%
The interest rate on the notes will be 8%. At the 8% rate,
the above yields result in the following prices:
Low-yield price 99.893
High-yield price
Average-yield price

99.722
99.786

The $2.0 billion of accepted tenders includes 75 % of the amount of
notes bid for at the highest yield and $1.1 billion of noncompetitive
tenders accepted at the average yield.
In addition, $0.1 billion of tenders were accepted at the average-yield
price from Government accounts and from Federal Reserve Banks for themselves
and as agents of foreign and international monetary authorities.
1/ Excepting 3 tenders totaling $295,000

FOR RELEASE UPON DELIVERY

STATEMENT BY THE HONORABLE GERALD L. PARSKY
ASSISTANT SECRETARY OF THE TREASURY
BEFORE THE
SUBCOMMITTEE ON INTERNATIONAL TRADE,
INVESTMENT AND MONETARY POLICY
OF THE
HOUSE COMMITTEE ON BANKING AND CURRENCY
WEDNESDAY, SEPTEMBER 24, 1975, AT 10:00 A.M.
Mr. Chairman and Members of the Subcommittee:
I am pleased to respond to the Chairman's request to discuss United States policy with respect to foreign investment and
the Treasury Department's role in foreign investments in the
United States. You have also asked me to discuss the proposed
acquisition of Copperweld Corporation by the French enterprise,
Societe Imetal.
Although it is inappropriate for me to discuss the merits
of the proposed investment, in part because it is currently the
subject of litigation in the courts, I am fully prepared to dis-

cuss, in accordance with the Chairman's request, how our investmen
policy in general relates to this case and the role that the
Committee on Foreign Investment in the United States has played
in connection with it.

WS-383

- 2Traditional U.S. Policy
I think it would be useful to review briefly for you our
traditional policy with respect to foreign investment here, so
that you will have a fuller appreciation of the context within
which the Administration has acted in this sphere.
U.S. policy with respect to international investment has
generally been based on the premise that we should rely on the
private market as the most efficient means to determine the
allocation and use of capital in the international economy.
Accordingly, our basic policy toward foreign investment
in the United States has reflected an "open door" approach.
That is, we offer foreigners no special incentives to invest here
and, with a few internationally recognized exceptions, have imposed
no special barriers.

Furthermore, foreign investors are generally

treated equally with domestic investors once they are established here.
There are a number of important reasons for our maintaining
an open policy toward foreign investment.

First, foreign

investment helps us to meet our large and rapidly growing capital
needs.

At a time when firms are facing difficult financing

requirements, we believe it would not be wise to raise new
restrictions on the available sources of capital.

Our open

policy towards capital flows is conducive to a healthy growing
U.S. economy and in this respect is beneficial to domestic
capital formation.

Moreover, at a time when unprecedented

budget deficits will place extraordinary demands on our capital

////

- 3markets, we should not close off those markets to willing
investors from abroad.
Second, foreign-owned companies have yielded the U.S.
economy the same benefits as their domestically-owned counterparts -- that is, employment opportunities, tax revenues, and
competitively-priced goods and services.

Some foreign investors

have brought unique technology to this country, while others
have played a major role in the development of particular
states or regions, bringing more jobs and other important benefits to their economies.
Our experience has been that the behavior of these companies
does not differ from that of domestically-owned firms. The
ownership of these companies has not altered their willingness
to abide by our laws, and they still must.compete in our
marketplace.
Third, as this Subcommittee is particularly aware, we are
by far the largest foreign investor in the world.

The book

value of our direct investments overseas -- amounting to well
over $100 billion -- is several times greater than foreign
direct investment here.

Furthermore, we now have treaties of

friendship, commerce and navigation with many nations under which
they have been promised that their investors -- with certain
well-defined exceptions -- will be given equal treatment with
American citizens with respect to investments within the United
States.

A consideration we constantly keep in mind is the

necessity that we not endanger these important treaties, which

provide parallel rights to U.S. investors in those countries.
Finally, we must always be aware of the responsibilities
attached to the leadership role we play in the world's economy.
If we were to abandon our historical support for freedom of
movement for capital and adopt investment restrictions, other
nations cduld be expected to follow suit and restrict U.S.
investment to a much greater degree than they currently do.
The need for worldwide cooperation is great at this time, and
we must not risk leading the nations of the world to a retreat
into economic isolation.
1975 Policy Review
Despite these considerations, many expressed concerns
about the rapid growth in the hands of a few governments of
funds available for investment abroad, and we, therefore,
recently conducted a complete review of our investment policy
and the effectiveness of our relevant laws and regulations.
The review was completed in late winter and its results were
presented to Congress in several hearings earlier this year.
Our basic conclusion was that the traditional U.S. open
policy with respect to foreign investment in this country should
be maintained. We have, therefore, opposed proposals for any
new restrictions on foreign investment in this country.
Underlying our decision is the belief that our existing
laws, regulations, and practices provide extensive information
with respect to foreign investments as well as adequate safeguards to deal with potential problems that might arise in

«

the case of particular investments.

&

There is a formidable array

of such laws, and I am sure that few people in this country
really understand the extent of the protection they provide
us against abuses by foreign investors.
There are, for example, a number of specific laws which
prohibit or limit foreign investment in certain areas of our
economy for reasons of national security or to protect an
essential national interest.

These sectors include atomic

energy, domestic airlines, shipping, Federally-owned land,
communications and media, and fishing.
Secondly, there are many laws which prevent abuses in
specific sectors.
defense area.

Among the most important are those in the

The Defense Department may deny security clearances

required to do classified work for the government to any firm
under "foreign ownership, control or influence."

Foreign invest-

ment in defense production facilities, although not expressly
prohibited, is severely limited by the prospect that such an
acquisition could result in the firm's losing its classified
government contracts.

Exports of arms and of classified tech-

nology related to defense manufacture are also effectively
controlled.
Finally, foreign investors are subject to the same laws
and regulatory constraints American firms must observe. Many
of these are quite familiar, but are not usually thought of
as protections against abuse by foreign investors.

-- Our antitrust laws prevent a foreign investor from monopolizing a specific sector, or engaging in various anti-competitive
practices.

They also prevent foreign investors acting singly

or in a group from making a purchase of, or engaging in a merger
or joint venture with, a U.S. firm if the result would be to
substantially lessen competition or tend to create a monopoly.
-- Our export control authority provides protection
against the export of any product or resource if our national
security is threatened, if there is an excessive drain of
scarce materials and a serious inflationary impact from foreign
demand, or if controls are needed to further U.S. foreign
policy.

Special, more detailed, rules apply to exports of

armarments and certain types of energy.
Our securities laws require disclosures of significant
foreign ownership, prevent harmful activities with respect to
tender offers and stock market price manipulation and generally
preserve orderly markets.
Our labor laws require all firms operating in the
United States to refrain from unfair labor practices and to
assure all workers safe and healthful working conditions.
Finally the President has broad emergency powers,
including (1) the Trading with the Enemy Act, which gives him
the power during a war or national emergency to control completely any property in the U.S. in which any foreign country
or national thereof has any interest; (2) condemnation power

&</r
- 7over any property within our jurisdiction; and, (3) priority
performance powers which authorize the President to order
the priority performance of defense related contracts, to
allocate materials and facilities necessary for national
defense, and to place priority orders for a particular product
and to take possession of the facility if they are not fulfilled.
Despite these extensive safeguards, we did feel that
certain new administrative actions to supplement our existing
laws and regulations would be desirable.

These included:

Creation of a new Office on Foreign Investment in
the United States, in the Department of Commerce, to synthesize
and analyze the data on foreign investment in the United States
which is collected by various U.S. Government agencies. Although
considerable data on foreign investment has been collected by
individual agencies, until the creation of this office there
was no central collection or dissemination point for analysis
of individual investments.
Establishment of a new high-level Committee on
Foreign Investment in the United States to monitor the impact
of foreign investment in this country and to coordinate the
formation of U.S. policy on such investment.
Arrangements with the foreign governments for advance
consultation with the U.S. Government on their prospective
major investments in the United States.

d

- 8-

Committee on Foreign Investment in the United States
During the past months, we have made significant progress
in implementing these new arrangements. The Committee on
Foreign Investment in the United States (the "Committee")
was established on May 7, 1975 pursuant to Executive Order 11858.
Under this Executive Order, the Committee has "primary continuing responsibility within the Executive Branch for
monitoring the impact of foreign investment in the United
States, both direct and portfolio, and for coordinating the
implementation of the United States policy on such investment."
The membership of the Committee consists of representatives
of Government departments and agencies which are generally
concerned with foreign investment issues, including among others
State, Commerce, Defense, and Treasury, whose representative
serves as Chairman. Thus, the Treasury Department has responsibility for coordinating the activities of the Committee.
The Committee also invites representatives of other agencies
which have an interest in a particular issue under review to
participate in its discussions of that issue.

- 9 -

'

Also as implementation of the Executive Order, the
Commerce Department has established an Office of Foreign
Investment in the United States to support the Committee's
activity.

The Office's responsibilities include developing

a consistent and timely data collection and processing system
on foreign investment activity in the United States; providing
evaluations and reports concerning the impact of foreign
investment to the Committee; and preparing reports for
publication.
The Office has been preparing statistical and other
analyses for the use of the Committee and is working intensively with a mangement consulting team and other government
agencies to develop improvements in the existing
system to secure more complete and timely data.

- 10 Committee Review of Specific Investments
In addition to its overall policy responsibilities, the
Committee is required to "review investments in the United
States which, in the judgment of the Committee, might have
major implications for the United States national interest."
With respect to specific investment transactions, the Committee
is primarily concerned with direct investment in the U.S. by
foreign governments -- although the Committee may review those
extraordinary private investments which may clearly adversely
affect the national interest.
As part of our policy, we have asked all foreign
governments contemplating significant foreign investment in
this, country to hold prior consultations with the United
States.

The Committee is to assist in these consultations.

We already have had clear indications that other countries
recognize our legitimate interests with respect to investments
in the U.S. by foreign governments.

In fact, I have personally

discussed this policy with the major potential government
investors in the Middle East and found a broad acceptance of
our desire for consultations as long as they are applied to
all governments on a non-discriminatory basis; and, of course,
they will be equitably applied.

The experience we had with

Iran in connection with its proposed investment in Pan Am
and with

Romania in connection with its proposed joint

venture with Island Creek Coal Co. are good examples of how

////

- 11 such procedures can work to the satisfaction of both
governments.
I think the easiest way for me to explain how the
Committee might review a major foreign government investment
proposal would be to explain on a step-by-step basis the
procedures we would follow on handling cases that come before
us.

Most commonly, Committee involvement in a particular

case would be touched off by the receipt from a foreign
government of notification of its intent to make an investment.
When we receive notification from a foreign government,
the information supplied is analyzed initially by the staff
of the Secretary of the Committee on Foreign Investment in
the U.S. in the Treasury Department.

The action taken will

be determined in accordance with the facts in the case.

The

Committee could, for example, simply indicate that it had
"no objection" to the investment.

Alternatively, the Committee

may decide to request consultations and to initiate a more
extensive review procedure.

This could range from asking the

investor for one additional piece of information to undertaking
lengthy consultations.
It is anticipated that only a few investments that come
before the Committee will reach the stage in which extensive
consultations would be required.
The Committee would handle private investments somewhat
differently.

The key difference is that we have not

I/6
- 12 specifically requested that private investors enter into
prior consultations on proposed investments.

We would

regard such a requirement as both unnecessary and
inappropriate.

In the event that a private investment

which came to our attention could clearly have adverse
implications for our national interest, the Committee
would ask the parties involved to consult with it.
Potential Acquisition of Copperweld Corporation
We initially became aware of the proposed takeover of
Copperweld Corporation by Societe Imetal through public
reports of the French firm's tender offer.

As the issues

involved in the case became clearer, the new office at the
Commerce Department kept abreast of the situation by
establishing contacts within the other U.S. Government
agencies involved in the case.
I was in touch with the French Ambassador and other officials
here in Washington in order to clarify our policy with respect
to foreign investment in the United States and to ascertain
to what degree the French Government was involved in this
investment.

They advised me that there is no French

Government involvement in the management of Societe Imetal.

4r/
- 13 The Committee became officially involved when it received
a letter, dated September 10, 1975, from Mr. Phillip H. Smith,
Chairman and President of Copperweld Corporation, concerning
the proposed acquisition of his firm.

Some days earlier,

Under Secretary Yeo, the Chairman of the Committee, had
notified its members that he had disqualified himself from
participating in any consideration of any U.S. Government
action concerning the proposed transaction because of his
prior professional relationship and friendship with Mr. Smith.
Consequently, on receipt of his letter, I assumed the post
of Acting Chairman and determined that the Committee should
review the issues Mr. Smith had raised.
Committee was called for September 18th.

A meeting of the
In preparation

for the meeting, the new Office of Foreign Investment in
the United States, in the Commerce Department, investigated
the background of the case, drawing upon resources within
the Commerce Department and its contacts with officials of
the Securities and Exchange Commission and the Justice
Department.

My staff and that of the office were also in

contact with the Department of Defense, which was analyzing
the possible defense implications of the transaction.

- 14 -

H&

After full consideration of the facts, the Committee
concluded that it had no basis for interposing itself
in this transaction.

This conclusion has been communicated

to Mr. Smith.
Conclusion
The lessons we have drawn from our analysis of our
experience with this case provide the answers to many of
the questions you raised, Mr. Chairman, in your invitation
to me to testify today.
First, the conclusion of our policy review that we
should not require prior notification with respect to
private investments continues to be sound.

Both the new

office at Commerce and our staff at the Treasury Department
were closely following the developments with respect to
Copperweld at an early stage, and we were able to act
expeditiously on it once it was formally brought before us.
Second, none of the developments in this case indicate
to us a need for additional legislation to safeguard the
national interests in regard to foreign investments in this
country.

We continue to feel that our current safeguards

against abuses of investment in this country, by domestic
and foreign persons, are adequate and we see no reasons to
depart from our traditional open policy.

- 15 During the past decade, foreign investors have become
increasingly attracted to invest in the United States for
a number of reasons: we offer a vast, affluent, and
integrated market; we are rich

in natural and human

resources needed to service such investment; and there
are intangible benefits, such as access to advanced
technology, which result from participation in the U.S.
market.

However, the single most important factor has been

that our markets have remained open and we have afforded
domestic and foreign investors equal treatment.

I believe

it is essential that we protect our national interests,
but this can be done without altering this basic underlying
policy.
I hope that these remarks will be useful to your
Committee, Mr. Chairman, and I will be happy to answer
any further questions you may have.

o 0o

STATEMENT OF THE HONORABLE EDWARD C. SCHMULTS
UNDER SECRETARY OF THE TREASURY
BEFORE THE COMMUNITY AND GENERAL GOVERNMENT TASK FORCE
OF THE HOUSE BUDGET COMMITTEE
SEPTEMBER 24, 1975, 10:00 A.M. EDT

Madame Chairman and Members of the Task Force, I
appreciate the opportunity to discuss with you today the
Administration's views on the General Revenue Sharing
program. I am especially hopeful that I can make some contribution to the successful operation of the new Congressional budget process. The success of your effort to
establish overall national spending priorities is essential
if we are to succeed in soon operating again under a
balanced Federal budget.
Before proceeding to the substance of my remarks, I
would like to explain my involvement in the Administration's
effort to renew revenue sharing. To begin with, as Under
Secretary of the Treasury, my office has supervisory responsibility for the Office of Revenue Sharing. Additionally, I
had the pleasure to serve as chairman of the interagency
steering group which last year reviewed how revenue sharing
has worked and developed recommendations about the program's
renewal for Secretary Simon to submit to the President.
On the whole, I think it is not difficult to justify
the need for General Revenue Sharing, even as it competes
for priority against numerous other Federal programs. Like
any program, revenue sharing should be judged in terms of
the goals which it was designed to accomplish. Any successful legislative proposal is likely to receive political
support for varying, and sometimes contradictory, reasons.
General Revenue Sharing is no exception. Nevertheless, I
think we can identify at least three broad and mutually consistent roles which the Congress foresaw for General Revenue
Sharing.
WS-384

Revenue sharing was enacted to help overcome certain imbalances within our Federal system of decentralized government, within the array of intergovernmental
aid programs offered by the national government, and
among the various State and local jurisdictions. The
imbalance within the Federal system basically involved
a lack of sufficient financial resources at State and
local levels of government to perform those public functions which they could do best. This poor distribution
of resources and authority among levels of government
was not adequately addressed by then existing Federal
assistance programs. Federal grants available to State
and local jurisdictions predominantly involved programs
heavily encumbered with national requirements and limited
to very specific uses. Finally, the distribution of
financial resources among States and localities did not
always match the distribution of demands for services.
The imbalances which revenue sharing has sought to
correct continue to merit attention. A vital federalism
capable of guarding against the overcentralization of
power and of providing responsive government in a large
and diverse nation is as much a priority today as it was
two hundred years ago. In an age when a large and distant
Federal government must concentrate on foreign affairs,
defense, and other national issues, there is a pressing
need to make sure that governments close to our citizens
have the fiscal strength to carry out those local tasks
they can best accomplish. State and local governments
possess a degree of awareness of citizen problems and a
potential for citizen participation not ordinarily available at the Federal level. Additionally, general purpose
— as opposed to special district or limited function —
governmental units are headed by elected legislators
and executives who must devise a coordinated approach to
a wide variety of public responsibilities. Because of
this breadth of responsibility and responsiveness, placing
Federal funds in the hands of elected local officials
through revenue sharing does make for efficient and honest
use of these monies.

3 -

//r&

The second condition upon which the need for General
Revenue Sharing was originally predicated was the fact
that Federal assistance to governments was heavily weighted
in the direction of categorical grants. While General
Revenue Sharing and several new block grant programs have
recently added greater flexibility in the total aid available, all levels of government still face the administrative burdens and inefficiencies associated with some types
of categorical grants.
Just last month the General Accounting Office released
a report entitled "Fundamental Changes in Federal Assistance
to State and Local Governments" discussing the problems
raised by providing grants with narrowly defined purposes
and numerous restrictions. Difficulties noted include:
inadequate information about programs for potential recipients; too complex application procedures; intricate administrative requirements; and obstacles presented to State
and local planning.
Administration of these grants-in-aid is also very
difficult for the Federal government to coordinate. What
often results is a very fragmented and duplicative delivery
system which directs funds in response to applications,
rather than on the basis of need. Jurisdictions which are
small and poor especially lack the resources to effectively
deal with these informational and administrative demands.
Program funds may also not be used in the most effective
fashion since categorical grants tend to substitute
Federal priorities for State and local knowledge about needs.
By no means do I intend to suggest that we do not need
narrowly-defined intergovernmental aids in program areas
where clearly identified national priorities exist. My
point is that we also need the flexible general support
assistance provided by General Revenue Sharing. We should
not expect either mode of Federal assistance to accomplish
purposes for which it was not intended.

/fs'7

-4 -

When Congress enacted the State and Local Fiscal
Assistance Act in 1972, there was a desire on its part to
effect a modest redistribution of resources among States
and localities, in other words, to better make the
financial resources of government match their needs to
provide services. The Administration is of the opinion
that the pattern by which revenue sharing has been distributed and the uses to which governments have put their funds
have helped to provide a better match between need and
fiscal ability.
Madame Chairman and Members of the Task Force, thus far
I have quite simply been arguing that while revenue sharing
has been a success, the conditions which the Congress
originally intended that it address continue to exist. Consequently, the rationale for its original enactment is also
applicable to its renewal. President Ford feels that this
approach to Federal domestic assistance claims a top
priority in competition with other important claims on our
national tax dollars. This view is particularly forceful
if one agrees that a strong Federal system, a balanced
system of intergovernmental aid, and an effort to better
relate need to capacity are national priorities.
Because General Revenue Sharing must compete with other
claims on the Treasury in a time of large Federal deficit
and continuing inflationary danger, the President has not
proposed an expansion in the base funding level or the size
of normal annual increases in the program. We are asking
that the present approach of providing $150 million annual
increments be continued. The total cost of the President's
program over the 5-3/4-year renewal period proposed is
$39.85 billion, compared to $30.2 billion for the present
5-year program. A $75 million funding bulge from the last
months of the current program would be moved forward into
the new program to continue to provide linear stair-step
increases. Annual program costs at the end of the proposed
extension period would be about $937 million more than at
the beginning. In addition, a total of $27.5 million would
be made available at the existing annual rate to provide
price-adjustments to the allocations of the noncontiguous
States, Alaska and Hawaii, when they qualify for this adjustment. While the total funding involved in the President's
renewal package is quite large, the annual increase in funding
level is only in the area of two percent, and this percentage
declines as time passes. Of course, these annual add-ons only
partially compensate for the impact of inflation at current
rates. They are, however, the maximum that the Administration
feels is justified in light of competing claims for the Federal
tax dollar.

//f9
- 5 I would now like to turn to a somewhat fuller explanation
of why the Administration gives General Revenue Sharing such
high marks on performance. As suggested earlier, a careful
assessment of the program's performance and renewal options
was made by a Treasury Department, Office of Management and
Budget and Domestic Council Steering Group during the last
half of 1974. The review effort culminated in some basic
decisions by President Ford at the end of December.
As a part of our study, we familiarized ourselves with
critiques of the program's operations and suggestions for
change from Congress, the General Accounting Office, the
Brookings Institution, the National Clearinghouse on Revenue
Sharing, public interest groups representing governments and
various social groups, and National Science Foundation
research then available. We have continued to assess new
information about revenue sharing that has appeared since our
legislative proposal was drafted.
In addition to reliance on the sources mentioned above,
we carried on our own examination of institutional arrangements, and statistical data relevant to the past operation of
the program, as well as the probable impact of proposed
alterations.
In settling upon recommendations for the President, we
concentrated on alternative approaches to revenue sharing
extension in the following issue areas:
- length and manner of funding
- the allocation formulas and associated procedures,
such as the division of funds between States and
localities and the constraints on local allocations
- non-discrimination
- restrictions on the use of funds
- public participation and publicity
- governmental reform
As is clear to everyone, there has been no lack of evaluation or shortage of recommendations about revenue sharing. The
Administration has been receptive to changes in the authorizing
legislation which offer strong hope of improving the program.
We have not proposed major amendments for several reasons. We

#7

- 6 -

are committed to giving high priority to what we view are
primary goals of revenue sharing — strengthening the Federal
system, improving the delivery of Federal assistance, and
helping States and localities to meet serious needs. We
feel that the existing program has done a very credible job
of meeting these priorities. At the same time, we do not
think that General Revenue Sharing can be designed to solve
all the political and social problems of our society. To
attempt to make it do so will reduce its contribution as
flexible, unencumbered Federal assistance.
Let me discuss some of the things we do not think revenue
sharing is suited to do. Shared revenues really have only
limited ability to bring about governmental and tax reform
in the jurisdictions where they are placed. Revenue sharing
is not normally a large enough portion of the total resources
of a recipient government to overcome political and legal
resistance to such reforms. This explains the seemingly
limited incentive provided for use of individual income taxes
by the existing five-factor interstate formula. If we
attempt to further tailor General Revenue Sharing to serve
as an incentive for such reforms, we are most likely to
destroy its flexibility. The same end is probable should we
try to direct the benefits of shared funds onto selected
social groups. Categorical or block grants are much more
appropriate for this purpose as well as for encouraging
structural or fiscal reforms.
Resources drawn from the relatively more efficient and
equitable Federal tax system have been made available to States
and localities through revenue sharing without the red tape
associated with most other Federal assistance. From the Federal
vantage point we have not seen the erection of a large and
expensive bureaucracy to administer the program. Expenditures
on its administration are around 0.12%, as compared to about
2% for general Federal aid to State and local units of
government.
The existing revenue sharing allocation formulas have
performed well in directing relatively more resources per
capita into needier jurisdictions. There is a tendency on
the part of some critics to overlook this very important
broad success. It is not a simple matter to develop an
allocation formula which performs as well as revenue sharing
given the diversity of governmental and fiscal situations
across this large Nation. It is by no means certain that the
Congress could again successfully blend competing philosophical,
geographical,
and and
jurisdictional
interests
a formula
one.
as equitable
broadly acceptable
as to
theachieve
existing

- 7The Brookings Institution, the Advisory Commission on
Intergovernmental Relations, and the General Accounting
Office all report that poorer, as compared to richer, States
receive generally greater revenue sharing allocations. For
example, Brookings reports that for 1972, Mississippi
received $39.90 per capita, as compared to $28.05 for
California.
Hard-pressed center cities, according to ACIR and
Brookings, also receive higher per capita allocations than
do their wealthier suburbs. The higher costs of government
in urban areas is taken account of by the existing allocation
formulas in other ways too. Brookings data indicates that
the most densely populated county areas, and county areas
with over one million population, receive higher than
average (as compared to other county areas) per capita
amounts. In fact, during 1972, counties falling within
standard metropolitan statistical areas received over 70 percent of local shared revenue.
A second way in which to assess revenue sharing's
response to need is through the manner in which recipient
governments utilize the funds they receive under the program.
All.who have attempted to analyze the fiscal impacts of
shared funds have agreed that the degree of fungibility of
this essentially "no strings" aid program makes this a most
difficult task. At the same time, one should bear in mind
that monies from all Federal assistance programs to some
degree release State and local resources for other uses that
are difficult to identify.
Various methodologies have been utilized to identify
the uses to which shared funds are put. Office of Revenue
Sharing Use Reports depend on reports from recipient governments. Interviews with officials, examinations of budget
documents, and the tracing of trends in expenditures have
variously been utilized by GAO, Brookings, and the NSF-sponsored
studies. It has proven easier to identify broad fiscal
impacts — such as use for new capital spending, operational
expenditures, or tax reduction — than specific functional
use. There does not, however, seem to be much doubt that
allocations have been widely used to maintain existing vital
services, to make possible needed capital expenditures, and
to lessen the burden of State and local taxation.
These broad impacts of revenue sharing clearly result in
benefits to all citizens. Yet, some commentators have felt
that General Revenue Sharing plays too small a role in solving

- 8 the numerous social problems of our Nation and directs too
little money to meeting the needs of the poor, aged, and
minorities. Again, I must point out that other programs are
targeted onto these important issues. Revenue sharing seeks
primarily to respond to the institutional needs of our
Federal system and the governments which are within that
system. We as individuals all benefit from the greater
effectiveness of our governments.
Madame Chairman, the Administration has little doubt
that revenue sharing also has more direct impact in solving
social problems than is evident at first glance. Some of
the ways it does so are:
- It frees up local resources for social expenditure.
- Education is the main use reported by States.
- Capital expenditures are often for schools,
hospitals, low cost housing, etc.
- Funds reported as spent in functional categories
other than for the poor and aged often can be of
benefit to the underprivileged — e.g. health,
transportation, law enforcement, environmental,
and recreational expenditures.
- Some jurisdictions have used allocations to
redress past discrimination.
- Revenue sharing shifts the financing of activities
away from relatively more regressive State and
local taxes to the relatively more progressive
Federal income tax.
- As recipients become more certain about the
program's future and perhaps more financially
pressed, they are spending more money on recurring program costs than on capital expenditures.
The funding levels for revenue sharing proposed in H.R.
6558 represent a compromise between the national necessity to
keep down Federal budgetary deficits, the need to adequately
fund competing priorities and the real fiscal needs of States

//U
- 9 and communities. Similarly, the manner of funding we are
recommending balances the need for Congress and the
President to control and regularly review expenditures
against the very real need which States and localities
have for the certainty and predictability of Federal
support.
We are proposing to continue the present approach to
the funding of General Revenue Sharing by providing a
5-3/4-year authorization and appropriation. The 3/4-year
is included so that the program conforms to the new Federal
fiscal year. We would also have the Secretary of the
Treasury report recommendations on further extension of
the Act by September 30, 1980, two years before the renewed
program's termination. This would assure that Congress has
enough time to carefully consider further extension and
thereby also assist State and local budgetary planning.
H.R. 6558 would take advantage of exemption available
to General Revenue Sharing from subsections 401(a) and (b),
of the Congressional Budget Act of 1974. Exemption is
specifically permitted from that statute if provided for by
Congress in legislation to renew the program. There are
other programs in addition to revenue sharing where
Congress has recognized the requirements of State and local
budgetary planning by granting advanced spending authority.
We have rejected proposals for a longer or permanent
appropriation, possibly tied to the Federal income tax base
or the Consumer Price Index. These approaches offer
inadequate opportunity for review and control.
We applaud the efforts that Congress has recently made
to strengthen its budgetary process. These improvements
should increase the predictability of much of the Federal
funding going to State and local activities by providing
more timely appropriations, as well as appropriations that
are in line with authorizations.
At the same time, we feel that adequate planning for
wise use of shared funds requires sufficient advanced
knowledge of funding levels by recipient governments.
Clearly, annual appropriations for revenue sharing would
not provide such. When the Joint Committee on Congressional
Operations considered changing the Federal fiscal year in
1971, it heard extensive testimony about the difficulties
faced by State and local governments if they were not well
advised as to how much Federal assistance would be available to them in the immediate future.

- 10 Ineffective and hasty planning, expensive construction
delays, and delays in important people-oriented services
all result from such uncertainty. These developments can
mean that citizens receive less than maximum benefit from
revenue sharing dollars. The capital projects on which
small governments spend considerable portions of their
shared revenues require especially long lead times.
An important reality of State and local budgeting that
further increases the need to know how much Federal funding
will be available is the fact that most State and local
executives must present a balanced budget to their legislative bodies. Officials are aided by the fact that borrowing is normally counted on the receipt side of these
budgets. However, the flexibility of non-Federal governments to borrow and tax to meet short-term deficits varies
and, on the whole, is more restricted than that of the
Federal Government.
Many of these problems are immediate in that States and
localities are currently beginning to put together budgets
for fiscal year 1977. Revenue sharing funds for only
one-half of that fiscal period are provided for by the
existing State and Local Fiscal Assistance Act. The fiscal
years of forty-six States begin on July 1, and agencies
must normally submit their requests to their State budget
office by at least October 15 of the prior year. Thus, in
a matter of weeks most State budget offices will begin to
evaluate agency requests for fiscal year 1977 and weigh
them against possible revenues.
At the local level, fiscal years and budgetary cycles
vary considerably by State and often vary within States.
The Census of Governments reports that most county, municipal,
and township fiscal years begin on July 1 or January 1. In
larger units of local government particularly, budgetary
cycles extend over a nine-month period, just as they do at
the State level. As a result, fiscal year 1977 budget
planning will often begin this fall at the local government level, too.
So, as you can see, it is extremely important to both
States and local governments that Congress act upon the
renewal of the State and Local Fiscal Assistance Act as
soon as possible.

- 11 Before concluding my testimony, Madame Chairman and
Members of the Task Force, I would like to briefly summarize
the content of H.R. 6558. The bill proposes renewal of
revenue sharing in its current general outlines. It seeks
change only where it is really justifiable without threatening the disruption of a broadly successful program.
I have already described our approach to the funding
of the renewal program, which essentially would continue
current arrangements. H.R. 6558 also does not change the
basic allocation formulas, which we think perform reasonably
well, especially given the difficulties of constructing
formulas for nationwide application. The bill only alters
the manner in which funds are distributed in one major way.
It would raise the local 145 percent per capita limitation
of average statewide entitlements to 175 percent in five
steps. This would allow the intrastate formula to allocate
funds in line with its standards of need more freely. Some
needy governments, in a number of cases large cities, would
benefit from this amendment. Since the change would be phasedin through five steps, other jurisdictions would be protected
from serious losses by the annual increments to the total
funding of the program.
While the Administration's legislation does not
propose to remove any important national standards for using
shared revenues, it does seek to increase the program's
flexibility of use and administration. Flexibility is
clearly at the core of the GRS approach to Federal assistance.
The Secretary of the Treasury would be given the discretion
to make reporting and publication requirements governing use
of funds more useful to local citizens and the Federal
Government and less burdensome on those who must provide the
information.
Those requirements relating to nondiscriminatory use of
funds and public participation in State and local decision
making about use of GRS funds are essential and reflective
of the program's original philosophy. We have sought to
clarify and strengthen these provisions in the new legislation. H.R. 6558 expressly defines the remedies available to
the Secretary of the Treasury in seeking civil rights compliance. The legislation seeks to provide citizens full
opportunity to influence choices affecting the use of shared
funds. It requires recipient governments to give assurance
to the Secretary of the Treasury that notice and opportunity

- 12 for citizen participation in decisions to use funds is
provided through a public hearing or by other means. Since
most States and communities already have such procedures,
this amendment would not place additional burdens on very
many recipients. Further, it is broad enough to permit
each jurisdiction to utilize procedures which best fit its
needs.
In summary, Madame Chairman and Members of the Task
Force, I have sought to explain how revenue sharing
contributes to a vital Federal system, provides a more
balanced and effective array of Federal intergovernmental
assistance, and successfully responds to pressing governmental and human needs in our States and localities. We
hope that you will agree with our assessment and that
Congress, for the reasons we have cited, will see fit to
extend the program as proposed in H.R. 6558.

FOR RELEASE ON DELIVERY, WEDNESDAY,
SEPTEMBER 24, 1975, 10:00 AM
STATEMENT OF THE HONORABLE DAVID R. MACDONALD
ASSISTANT SECRETARY OF THE TREASURY
(ENFORCEMENT, OPERATIONS, AND TARIFF AFFAIRS)
BEFORE THE
SUBCOMMITTEE ON CRIME
OF THE COMMITTEE ON THE JUDICIARY
UNITED STATES HOUSE OF REPRESENTATIVES
WEDNESDAY, SEPTEMBER 24, 1975
Mr. Chairman, it is always a pleasure to appear before
this Subcommittee to continue a dialogue that has ranged from
the philosophy of statutory enactment as a means of effecting
moral change, to the size of ATF's budget. I understand that
today's testimony is to be closer to the latter than the former.
I do think it appropriate, however, to classify one
ambiguity contained in the letter from the Subcommittee inviting
me to testify. In your letter, Mr. Chairman, it is stated:
"[W]e agreed to examine further your contention at that
time that the Bureau of Alcohol, Tobacco and Firearms
in general has been adequately funded in recent years
for the fulfillment of its various statutory responsibilities ."
Actually, I did not defend ATF' s budget as such. The issue
that gave rise to this hearing, as I understand it, arose out
of a discussion at my last testimony on July 24, 1975, which
went as follows:
"Mr. Macdonald. ... I would be interested in going
over seriatim those areas in which you feel that ATF
has not done a job under the 1968 Gun Control Act with

WS-385

- 2its limitations, which we are trying to correct by this
proposed legislation.
"Mr. Conyers. I think that is a great idea and I accept it.
Thus, I look forward to discussing those areas of ATF's
operations 1) which reflect a substantial failure to carry out
and enforce the Gun Control Act of 1968 as intended by Congress,
and 2) as to which corrective measures have not been addressed
in the President's Crime Message, delivered to Congress on
June 19, 1975, and introduced as H. R. 9022.
You were kind enough to supply me with extracts of testimony
from several Regional Offices of ATF. These statements, almost
to a man, complain about lack of funds. I must say that,
although I do not agree with all of the factual conclusions
reached by these officials, I would have been disappointed
had they not shown their dissatisfaction with their own performance and eagerness to obtain every last dollar they could
squeeze out of the budgetary process in order to attempt to do
a better job.
I think everyone at Treasury and ATF (and I know this is
true of Director Davis) realizes that ATF (like any other agency
charged with enforcing a criminal statute) must always strive
to improve its enforcement of the Gun Control Act of 1968.
Analysis of the statements extracted by Subcommittee staff,
however, indicate that ATF officials, when they testified before
the Subcommittee, made the following points relating to resources
1) ATF has insufficient manpower to make the number of
firearms dealer inspections which should be made. This is
by far the most common complaint.
2) Limited manpower has forced ATF to concentrate on the
more serious violations and persons who pose the most serious
threat to public safety in the "significant criminal program."
3) When explosives violations are made a first priority,
as in the Western Region, manpower is necessarily diverted
from pursuing firearms violations.

yc *
- 3 4) ATF, at least in the Midwest Region, feels it has
insufficient funds for undercover purchase of evidence.
5) ATF can handle only so many gun traces and, therefore,
does not advertise its tracer service.
6) ATF, at least in the North Atlantic Region, needs more
automobiles.
7) ATF needs a greater computer capability.
As to the problem of dealer inspection, the Administration
has addressed itself to this problem with legislative recommendations, contained in H. R. 9022, which I outlined in my
testimony before the Subcommittee on July 24, 1975. Our
proposals are aimed at improving the effectiveness of the Gun
Control Act by instituting a number of comprehensive revisions.
One such revision will effect a reduction in the number of
dealers so that they can be regulated more closely. Then,
rather than increase the number of ATF inspections, we propose
to reduce the number of dealers to those responsible ^dealers
who are actually engaged full-time in the firearms business.
Thus, we proposed amending the existing licensing standards
by including a provision which would permit the Treasury to
inquire into each applicant's business experience, financial
standing, and trade connections in order to determine whether
the applicant is likely to commence the proposed business within
a reasonable period of time and maintain such business in conformity with Federal, State and relevant local law.
Secondly, we propose to amend the Act to create special
license categories for ammunition dealers, gunsmiths and dealers
in long guns only.
It is true with ATF, as with every other enforcement agency,
that manpower limits cause the agency to concentrate on the
most serious violations and violators. The investigative programs of all Federal investigative agencies must be carefully
planned to make the best use of limited manpower. Moreover,

- 4 this is precisely what the President and Congress intended
in connection with the Gun Control Act of 1968. The
Johnson Administration originally proposed the legislation
that became the Gun Control Act of 1968. In his message,
the President explicitly stated that the legislation was
not intended to curtail sporting or self-protection firearms, nor was it intended to take the place of action
appropriately reserved for State action. Rather, it was
intended to assist States by providing better controls
over interstate and foreign commerce, leaving the issue
of bans, registration, etc., to the states.
The Midwest Region feels it has insufficient funds
for the undercover purchase of evidence. I am sure you
appreciate that every Federal investigative agency which
develops criminal cases through the use of this investigative technique would want to make as many cases as
possible. Therefore, it is logical for the agency to feel
that no matter how much money it has, it could still use
more and develop additional prosecutions. However, as
you know, there has to be a limit somewhere. This is
similar to the amount of funds available to pay informants.
The more money you have, the more information you may get
but the supply of money can never be limitless.

470
- 5 Providing ATF with additional manpower would not
necessarily increase its ability to trace weapons. The
limitations attached to ATF's tracing capabilities are due
to clerical problems at the manufacturer's level. The
manufacturer must make a manual search of his records of the
dealer who took delivery from the manufacturer. To improve
this process would require manufacturers and all other
licensees to forward records to a central location for
computerization. Neither Congress nor the Administration
has supported such registration to this point. In fact,
Mr. Chairman, our guidance from Congress, particularly in
annual appropriations hearings, has led us to the measured
expansion and reallocation of forces.
Analysis of ATFfs manpower applications since 1968 shows
a steady and strong emphasis on firearms enforcement. From
FY '68 to FY '76, the allocation of agent manpower to firearms
enforcement has been shifted from 21% of the total agent manpower available to 77%.
In terms of ATF budget requests and Treasury and OMB
allowances, there have been some overall reductions over the
years, but it is clear that the increases for firearms and
explosives enforcement have been substantial, from $1.3
million (approximated) to $71.5 million (approximated) per
year during the FY '70 to FY '76 period. More recently, as
a percentage of the total ATF budget, firearms and explosives
enforcement has increased from about 33% (FY '70) to 63%
(FY '76) of the total budget.
In a management sense, an agency cannot absorb, train and
utilize a huge influx of money or manpower; such expansion should
be measured and programmed. As the Regional Director, Mr.
Morrissey pointed out at your hearings, his staff could not
handle a major increment, in his example, doubling the staff,
because there would be no means to adequately train the new
agents over a short period of time.
Concerning ATF's regulatory efforts, it is true that ATF
has not recommended the promulgation of every conceivable
regulation which may have been possible under the Gun Control
Act of 196 8 in an effort to reduce the number of guns in the
hands of United States citizens with a view to reducing violent
crime thereby. In evaluating ATF's performance in this regard,
we should bear in mind the intent of Congress in enacting the
Gun Control Act. Congress was careful to state that:

- 6 ". . .it is not the purpose of this title to place
any undue or unnecessary Federal restrictions or
burdens on law-abiding citizens with respect to the
acquisition, possession, or use of firearms appropriate to the purpose of hunting, trapshooting,
target shooting, personal protection, or any other
lawful activity, and that this title is not intended
to discourage or eliminate the private ownership or
use of firearms by law-abiding citizens for lawful
purposes, or provide for the imposition by Federal
regulations of any procedures or requirements other
than those reasonably necessary to implement and
effectuate the provisions of this title."
The Bureau of Alcohol, Tobacco and Firearms currently
does not have general purpose computers of its own. It^
obtains its computer support from outside the Bureau primarily
through the use of other Treasury computers.
The Bureau accesses the Treasury Enforcement Communications System (TECS), operated by the U. S. Customs Service,
through teletype terminals in its headquarters, regional and
district offices. The use of this system is limited to
specific law enforcement activities including inquiries and
response to the TECS data base and use of the TECS network
for distribution of messages from ATF headquarters to its
agents in the field, for access to the National Crime
Information Center (NCIC) of the Federal Bureau of
Investigation and to access State and local police offices
through the National Law Enforcement Telecommunications
System (NLETS).
The Bureau uses the Internal Revenue Service's Data
Center at Detroit, Michigan for automated payroll/personnel
services, for operation of a criminal and regulatory case
history information system and for miscellaneous one-time
projects. Access to this facility is by mail. The design
and development is done by IRS personnel.
The Departmental computer in the Office of Computer
Science in the Office of the Secretary is being used for
the development of regulatory and criminal enforcement systems
such as the Firearms License Master File system and the
Firearms Trace History System. All the applications on this
computer are in the early stages of development and only
limited production work has been done to date in the primary
form of listing of initial data on the test files. This

#9z
- 7 computer is accessed through a remote job entry terminal
located in the Bureau's headquarters.
The Bureau does have a small computer in its laboratory
which is dedicated to data reduction and chemical analysis.
The Bureau has a limited staff of four (4) professional
computer specialists. This staff, in addition to working on
new applications, is developing a five-year plan which includes
obtaining the Bureau's own computer facility. In the interim,
the Bureau plans on continuing its use of the Treasury facilities
listed above, the Bureau of the Mint's computer at San Francisco
or commercial sources as appropriate.
The testimony of the Acting Regional Director in the North
Atlantic Region contains remarks about lack of equipment. He
stated, "We have got three of our agents riding in one car,
riding the bus or subway." At the time he appeared, the North
Atlantic Region had 191 vehicles assigned and, by Goodwin's
own testimony, 181 agents. Therefore, the ratio of vehicles
to agents works out to more than one car per agent, especially
since the figure of 181 agents includes supervisors and
analysts who, although they are Special Agents, do not need
cars to perform their usual daily duties. A shortage of cars
cannot, therefore, be a reason for not utilizing manpower in
the North Atlantic Region.
GSA Guidelines require that Government agencies should
retain vehicles until they reach six years of age or are driven
60,000 miles, whichever comes first. The standards established
by GSA are guidelines for cost effectiveness and safety.
Generally, because of limitations imposed by Congress, agencies
are not able to replace automobiles as often as they would
like. For example, in Fiscal Year 1976, 494 Secret Service
vehicles were eligible for replacement but the Service was
only permitted to replace 77, leaving 417 in service which
qualified for replacement under GSA standards.
In summary, Mr. Chairman, a review of the reports of our
House Appropriations Subcommittee would appear to reflect
general satisfaction with the funding level of ATF. Both ATF
and the Treasury would like to operate on unlimited funds.
A balanced view of the situation against the backdrop of the
legislative history of the Gun Control Act of 196 8, however,
leads us to believe that the Congressionally approved budget
limitations set in the years since the passage of that Act,
even in hindsight, have shown a reasonable mixture of support
for ATF with fiscal restraint.

FOR RELEASE ON DELIVERY
STATEMENT OF THE HONORABLE WILLIAM E. SIMON
SECRETARY OF THE TREASURY
BEFORE THE JOINT ECONOMIC COMMITTEE
WEDNESDAY, SEPTEMBER 24, 1975, 11:00 A.M.
NEW YORK CITY'S FINANCIAL SITUATION
Mr. Chairman and Members of this Distinguished Committee:
I am here today at the express invitation of the
Chairman, who has called upon me to testify about the possible
impact of a financial default by New York City.
This is an occasion that none of us can welcome. All of
us share the hope that a default can be avoided. Personally,
I am confident that if the proper steps are taken, default
will be avoided. One of the great pleasures in my life was
to spend some 20 years working in the financial community in
downtown Manhattan. I gained from that experience not only
a love for the City but also enormous respect for the wisdom
and strength of its people. I sincerely believe that if
those great resources are properly marshaled, New York City
will emerge from its current difficulties.
As your invitation to me recognizes, however, it is
also important that we seek to understand what the implications
would be if default does occur. I am sure that the Members
of this Committee, as well as the American people, want this
inquiry to be as honest and objective as possible. This
cannot be a time when we delude ourselves with excessive
optimism and thus fail to act wisely. By the same token, we
should not engage in excessive pessimism. Impassioned
statements that a default would have catastrophic consequences
for the financial markets as well as the economy — statements
which have no foundation in observable facts — can only make
the situation worse. This is a time, then, for an honest
appraisal, devoid of emotionalism or partisanship. My
testimony today is offered in that spirit.

/£' 9

l

- 2 I have appeared before this Committee many times to
discuss economic and financial issues. I have enjoyed our
dialogues and I recognize their value in exposing your
colleagues in the Congress and the nation as a whole to a wide
range of views on the issues which confront us.
Our job today is not a pleasant one. This Committee has
an obligation to inquire into the major economic matters
which face the nation and I have a corresponding obligation to
present the Administration's views: responsively, accurately
and fairly. And neither of us meets these obligations unless
we deal with all sides of the issues: the unlikely as well as
the likely, the worst case as well as the best.
Moreover, these obligations extend beyond evaluation. To
the extent we identify the potential for harm in a default, we
must implement measures designed to minimize harm in the
event default occurs. Properly designed, such measures should
not enhance the possiblity that default will occur. Nor
should they reflect a judgment that a default will necessarily
occur. They simply involve the Government carrying out one
of its most important roles: protecting its citizens.
It is for these reasons that we have carefully evaluated
the potential impact of default. Because default has two
aspects — the objective and the psychological — any
evaluation of the impact must involve highly subjective
judgments. Absolute certainty is simply not possible.
With these considerations in mind, let me outline the
substance of my remarks today.
First, although the challenges and the task are great,
New York City, with the assistance of the State, has both
the mechanisms and the resources to avoid default.
Second, if default were to occur, the event would be
primarily legal in nature: the political and social infrastructure of the City would remain intact.
Third, while a default could adversely affect the capital
markets, the effect in my judgment would be tolerable and
temporary.
Fourth, a default would cause little, if any, damage
to our financial structure: the banking system would remain
intact, no bank customers would lose their deposits, and the
system would continue to be able to provide credit to all
levels of the economy, including consumers.

wr
Finally, the costs and risks associated with any program
to provide special federal financial assistance to prevent
default substantially outweigh the benefits which prevention
would provide.
The Administration Program
At the President's request, I have put together an
informal inter-agency task-force, chaired by my Under Secretary
Edwin H. Yeo III, to deal with every aspect of a potential
default by New York City. The evaluations and the plans
outlined in my testimony today are the result of these efforts.
We did not, however, feel that it would serve anyone's interests
to publicize the activities of this group until this time.
Working through this group, and with the cooperation of
other agencies of government, we have developed a program
designed specifically to minimize harm in the event of a
default. Particular aspects of the program are described
in detail throughout my testimony, but let me summarize it
now.
— To complement action by the State Legislature,
we have prepared, and will shortly submit to
the Congress, legislation amending Chapter 9
of the Federal Bankruptcy Act to facilitate
use of the protections of that Act by
New York City. In addition, we are also studying
the feasibility of a Chapter 11 type
reorganization procedure as an alternative
mechanism.
— We will continue to provide for the flow of
Federal assistance payments to New York City.
— To protect the banking system and thus
assure the continued availability of resources
that system provides to consumers, corporations
and governments, the FDIC will, in appropriate
cases, provide capital to institutions where
such action is necessary to maintain solvency.
Moreover, as Chairman Burns reported to this
Committee earlier this month: "the Federal
Reserve will act promptly to relieve liquidity
strains on the banking system, whatever the
cause of those strains may be."
Let me repeat, default can be avoided. But it is our
responsibility — to the Congress and to the nation —
to design programs for any eventuality.

ft

Current Status
Let us now consider the current efforts of New York City
and New York State to prevent a default.
On September 9, a special session of the New York State
Legislature enacted legislation calling for:
— Creation of a State dominated Emergency Financial
Control Board to assume plenary control over the
City's finances;
— Authority to issue $750 million in short term
State notes, the proceeds to be used to purchase
MAC bonds;
— A mandate to State and City employee pension plans
to purchase $750 million in MAC bonds (and relief
for the State Comptroller with respect to his
fiduciary responsibilities regarding these plans);
— An increase in MAC's borrowing authority from $3
billion to $5 billion; and,
-- Authorization for the City to file a petition in
bankruptcy under Chapter 9 of the Federal Bankruptcy Act.
Two days later, New York State sold $755 million of
short term notes, including $250 million earmarked for the
City. MAC is beginning to raise from other sources the
$800 million necessary to complete the $2.3 billion package
which is required to finance the City through December 1.
At the City level, meanwhile, Mayor Beame has appointed
a top financial executive to serve as the chief financial
officer of New York City and to develop, by mid-October, an
expense reduction plan to return the City to a sound fiscal
basis.
These laudable efforts reflect a renewed sense of
dedication to attack the causes of the problems I discussed
with Congressman Rosenthal's subcommittee last June. Will
these measures work? Can the City do enough between now
and December to restore investor confidence? Some have
answered in the negative, but I cannot agree. I would be
less than candid with this Committee if I suggested the
task will be easy. I would be less than candid if I
failed to say that more in the way of immediate actions -immediate expense reductions — is required now than would

- 5-

J/W

have been required at some earlier time. But it would be
equally untruthful to suggest that the job cannot be done.
Appropriate mechanisms are now in place. It is essential
that they be used promptly and well.
Impact of a Default
Necessary Concepts
To set the framework for my analysis of the impact of
default, it is important to define some relevant terms and
concepts. I sense that the dialogue concerning the issue
has been hampered by confusion over the meaning and import
of certain key words. First, there is "insolvency" which,
simply stated, means that a person or a city has current
obligations which exceed its available funds. "Default" is
a technical legal term describing a debtor's refusal or
inability to pay a creditor who has demanded payment.
"Bankruptcy" describes a legal proceeding — provided for
in the Constitution — under which an insolvent party in
default turns over to a court the job of deciding how his
financial resources will be apportioned among creditors.
In looking at default and bankruptcy, we should also
draw a distinction between the options available in the event
of a corporate default and those available with respect to a
municipal default. If a corporation defaults and is subsequently brought under the jurisdiction of a federal bankruptcy court, one option — albeit often not the most desirable
one -- is liquidation: the sale of assets to satisfy
the claims of creditors and the subsequent disappearance
of the corporation as a continuing entity. Both common
sense and Constitutional principles preclude such an
option with respect to municipal defaults.
In this respect, a default by a state or local
government is closely analogous to a default by an individual
person. In either case, if a bankruptcy proceeding ensues,
resources essential to the maintenance of life in the one
case and essential services in the other, are protected
from the demands of creditors.
It is important to re-emphasize this point: If
New York City defaulted, it would continue to exist and to
operate. Tax payments, Federal and State assistance
payments and other sources of revenue would continue to
flow. Schools and hospitals would remain open; police,
fire and sanitation services would be provided and paid
for.

In short, it is essential not to confuse the legal
and idiomatic meanings of the term bankruptcy. In common
parlance, we may use bankruptcy to define a condition devoid
of substance or resources. By that definition, New York
has not been, is not now, and will not be bankrupt.
If New York City does default, however, to deal with its
creditors in an orderly way, a proceeding under the Federal
bankruptcy laws is the most appropriate solution.
As I have often said, no observer who is asked to predict
the impact of a default can do so with absolute certitude. A
default — like any major financial reversal — has two aspects:
a tangible, objective aspect on the one hand and a
psychological aspect on the other. It would be inadequate
to limit the analysis to only one of these aspects. And
confusing the two would further cloud our evaluation of the
impact of default. Indeed, I sense that such confusion
is in large part responsible for some of the more extreme
predictions which have been made in recent weeks.
Moreover, as I cautioned in my letter of last week,
it is important to be sensitive to the risk that the
evaluation process itself may aggravate reaction to a
default. Let us suppose, for example, that leaders of major
financial institutions contend that their institutions and
the markets in which they function would be devastated by
a default. Objective factors notwithstanding, such
contentions would measurably enhance the impact of
default.
Let me turn to a sector-by-sector analysis.
Essential Services
If New York City defaulted on an obligation to
redeem a maturing note issue for cash, a question of
immediate importance is whether the City could continue
to provide essential services: police and fire protection,
sanitation, mass transit, water and sewerage facilities,
and the like. We evaluated the outlays required to
provide these services against the City's level of
receipts. While, as I have indicated on earlier occasions,
levels of outlay for these services are extreme in relation
to the outlays of other cities, New York City's revenues
appear sufficient to provide an adequate level of services
in the event of default.

- 7 Federal Assistance Programs
Another potential concern relates to continuation of the
various Federal Assistance programs which benefit the citizens
of New York. The Office of Management and Budget and the
Domestic Council have completed a survey of the most important
of these programs with the objective of identifying the
potential consequences on scheduled assistance flows in the
event local mechanism temporarily become unavailable. As the
Committee knows, certain assistance to the City and its citizens
depends upon local matching funds. The great bulk of this
assistance is matched by the State of New York. However, under
State law, the City is required to provide some share of the
State portion. In our view, and under current Federal law, the
State is responsible to make the matching payments if the
flow of Federal assistance is to continue.
Speaking more broadly, programs of assistance to the
disadvantaged are fundamental in a compassionate democratic
society. But if such programs lose the support of the American
people -- if they are perceived as too often providing the
wrong benefits to the wrong recipients — our ability to
provide any assistance of this nature will be limited.
For these reasons, the President has asked Vice
President Rockefeller, as Chairman of the Domestic Council,
to conduct a thorough re-evaluation of all Federal assistance
programs and to develop proposals for reform. While that
review is not yet complete, my views are well known. I
personally have long favored a simple program of income
maintenance as the most efficient approach to our responsibilities
in this area.
Debt Adjustment
The requirement that the City continue to provide and
finance essential services underscores the importance of
insuring that there is an orderly mechanism for allocating the
City's financial resources and effecting a restructuring of
the short term debt. Absent such a mechanism, there is the
risk of a multitude of lawsuits, each seeking a legal
injunction against the payment of City funds to one class
of creditor or another.
It is for this reason that we have prepared, and will
submit shortly to Congress, legislation amending Chapter 9 of
the Federal Bankruptcy Act. This legislation is designed to
insure that the claims of all legitimate creditors would be
dealt with in a single proceeding. It would be complementary
to the legislation enacted by the New York State Legislature
authorizing New York City, in the event of default, to seek
reorganization of its debt under the plenary jurisdiction
of a federal court.

J

9

- 7a -

Specifically, our proposal would modify existing law
by eliminating the existing requirement that a city must file
a reorganization plan and written assents to the plan from 51%
of the creditors before obtaining the protection of a Federal
bankruptcy court. Under the revised procedure, Federal protection would be provided upon the filing only of a simple
petition by the City. As is the case with respect to other
types of reorganizations under our bankruptcy laws, the reorganization plan and the creditors' assent thereto would be
developed in the course of the proceeding. In the interim,
however, the City would be protected from conflicting claims
and injunctions regarding its resources, and could continue to
conduct its affairs in an orderly manner.
I would point out that this proposal is substantially
consistent with the recommendations of the National Commission
on the Reform of the Bankruptcy Laws, embodied in S. 235.
Financial Markets
In assessing the impact of a default on the financial
markets, we are dealing in the realm of judgment; as I have said,
absolute certainty is simply not possible. My analysis is based
on a detailed review of all the factual circumstances, discussions
with a wide range of market professionals in the private sector,
and my own conclusions, based on more than twenty years of experience in the investment banking business.
The impact of a default on markets other than the municipal
market is, in the final analysis, closely related to the impact
on the overall economy. As I shall discuss more fully in a few
moments, it is our judgment that a default would not damage the
prospects for the Nation's economic recovery. The public understands that New York City's problems are unique in most important
respects. Moreover, over the past six months and in the months
to come, the public has had, and will have, ample opportunity to
decide whether a default by New York City is merely representative
of a more fundamental flaw in our economy. Only if such a conclusion were reached — and there is no objective reason why it
should be -- could we expect a serious and lasting adverse impact
on these markets.
Municipal Bond Market
Our conclusions with respect to the municipal bond market
are at once more precise and more complex. Over at least the past
year, the municipal market has been unsettled due to a variety of
complex factors.

*?/
- 8 -

First, the enormous volume of tax-exempt securities coming
to market — more than $51 billion of bond and notes in 1974
and more than $40 billion in the first eight months of this
year alone — has not been matched by a corresponding increase
in demand for such securities. Second, inflation and now its
inevitable handmaiden — the anticipation of future inflation —
caused by massive Federal demands on the market has dampened
investor interest in committing funds for the long term. Finally,
a series of events — the repeal of the Port Authority covenant
by the legislatures of New York and New Jersey; the default by
UDC, occasioned by the New York State Legislature's initial refusal to carry out its "moral obligation;" and the problems of
New York City itself — have all sharpened investor awareness
of risk and created an element of doubt about the willingness
of public bodies to carry out their financial obligations.
To a significant extent, these doubts have already led
to some adjustments in the market. In the event of default, we
would expect only a temporary period of moderate adjustment. And
over a slightly longer time frame, we can see some potentially
favorable signs. We understand that numerous intermediaries
and investors are currently withholding funds from the municipal
market because of the current uncertainties. When the New York
City situation is resolved — one way or another — we can expect
a substantial return of funds to the market, improving liquidity
and lowering borrowing costs.
But the implications of default are broader than short range
fund flows or price adjustments. Since at least the beginning
of this decade, there has been a marked increase in the tendency
of investors to restrict themselves to higher-grade instruments —
or a "flight to quality" to use the terminology of the market.
Inflation and its by-products is the primary cause, but there is
little question that major financial reversals — the penn central
bankruptcy, for example — have served as important catalysts.
Clearly, New York City's situation has caused this trend to
accelerate. Issuers whose obligations are viewed as less than
prime are paying high rates of interest relative to the general
structure of interest rates. Conversely, well-run issuers are
benefitting in the form of lower rates.
In short, when we move away from this period of uncertainty,
underlying credit characteristics — financial soundness — will
be the dominant factor in the pricing of all municipal debt. The
result will be a better and more efficient municipal bond market.

)p
At the same time, we cannot ignore the way in which the
municipal market has performed even under these seriously unsettled conditions. During August alone, four states and 255
municipalities raised nearly $2.6 billion in long term debt.
And contrary to widely held opinion, such funds were raised at
a cost not grossly disproportionate to historical levels.
Traditionally, there has been a 30% spread between taxexempt and taxable issues of comparable quality. When we hear
complaints about the record ratess municipalities are paying
for funds, we must keep in mind that conditions in the corporate
market are no better. This month, the spread between long term
prime municipals and comparable utility issues was squarely on
the 30% figure.
This is not to suggest that the municipal market has not
been impacted by the uncertainty surrounding New York City's
condition. But it does place the reaction of the market in a
more accurate perspective than some of the rhetoric of recent
months.
Finally, the disruptions which have occurred in the market
place can provide an impetus for some very important reforms.
One reason our capital markets are the finest in the world is
that, under our laws and procedures, investors are provided with
detailed and accurate information concerning potential investments.
To the extent investors begin to receive such information from
tax-exempt issuers, the market will clearly benefit.
New York State and Its Agencies
We have taken a particularly careful look at the credits
within New York State to determine whether any credit would
be able to withstand an increased level of scrutiny. We now
believe there is little risk that a default by New York City
would directly precipitate a default by New York State or its
agencies.
Impact on the Banking System
As the Committee is aware, the Treasury Department, in
conjunction with the Comptroller of the Currency, the Federal
Reserve Board and the FDIC, has taken a close look at the
holdings of New York City securities in our banking system.
While significant amounts of New York City's debt is held by
commercial banks, we do not believe a default would have a
material impact on the banking system.

^

Specifically, our analysis revealed that only an
infinitesimal number of the nation's 14,000 commercial banks
could face serious capital impairment if New York City defaulted
Moreover, all of the nation's larger banks would be secure in
the event of default.
But as is the case in other areas, we have felt an
obligation to develop mechanisms to minimize all risks, however
small. Accordingly, with respect to any bank which may be
impacted, various mechanisms are now available to insure that
none will fail as a result of a decline in the value of their
holdings of New York City obligations. Bank customers have no
need to fear for their funds.
1. Where possible, bank directors will be required to
contribute additional capital.
2. Certain banks may be sold to, or merged with, other
banks or bank holding companies.
3. As a last resort, in appropriate cases, the FDIC may
provide capital in the form of convertible subordinated
debt, at the same time imposing appropriate sanctions
on the bank officials directly and indirectly
responsible for the bank's exposure.
In addition, in recognition of the likelihood that any
default could be cured promptly, the bank regulatory
agencies have agreed that in the event of default, no
bank will be required to write its holdings to market
for six months.
Overall Economic Impact
As I suggested earlier, we cannot conclude that a
default by New York City would result in a broad-based decline
in consumer or investor confidence or in the adoption of
unnecessarily restrictive lending policies by financial
institutions. The American people know the reasons New York
City is having financial difficulties and they know that there
is little, if any, direct relationship between these
difficulties and the condition of the national economy.
New York City is facing a possible default because for
years it has spent far more than it takes in. New York City
is facing a possible default because, until recently, it has
not shown itself willing to implement the necessary reform
measures required to restore confidence and regain access to
the capital markets. No change in the national economic
picture will measurably improve conditions in New York. And by
the same token, no change in New York's condition will materially
influence the economy as a whole.

U^l

- 11 -

Federal Financial Assistance
The only event which could modify this conclusion would
be the provision of Federal financial assistance to avert a
default. Indeed, such assistance — be it in the form of a
guarantee or a loan, insurance or a grant — would, in my view,
cause many problems for the process of recovery.
As the chief financial officer of this great country I
have a responsibility to all the people, not simply to
particular groups or sectors at particular times. My job, in
essence, is to protect and restore the eroding fiscal and
financial integrity of the United States for the benefit of
every citizen. To state my views on special financial assistance
for New York City most directly: I would be ignoring this
fundamental responsibility if I were to support such assistance.
For years, government at all levels has been promising
more than it can deliver. This is the cause of New York City's
problem and, in my view, it is the cause of our severe problems
at the Federal level as well. More and larger deficits and the
increased level of Federal borrowing required to finance these
deficits have combined to threaten our economic system with
fundamental change: No longer can we be confident that our
private sector will have access to the capital required if it
is to meet the needs of all our citizens. Yet some would have
us accelerate these changes to deal with the consequences of
fiscal irresponsibility at the local level.
Any form of financial assistance would directly increase
the burden the Federal Government imposes on the capital markets.
Who would suffer? All borrowers, including every other state
and local government, would pay higher interest rates. And
certain sectors — housing, small and medium-sized companies,
for example — could discover that funds were not available at
any price.
Moreover, we do not escape these problems by making the
assistance slightly less direct; by providing a guarantee or
insurance for municipal debt. Indeed, such a program would
create a security superior to those of the Federal Government
itself: Backed by the full faith and credit of the United
States and exempt from Federal taxes. The impact on any municipal issuer which did not have a guarantee would be direct and
severe: The guaranteed bonds would skim the cream of the market
and all other issuers would pay higher rates.
And what would such a program do to fiscal policies at the
local level? Today, the desire to maintain access to credit
at the lowest possible rate is the most important incentive for
participants
fiscal
restraint
restraint.
on with
spending
the
A Federal
would
creditbe
guarantee
of lost
the United
entirely.
program
States:
would This
provide
critical
all

- 12 -

#?r

But, some will ask, why not have the Federal Government
impose these restraints as a condition for the guarantee? Thai
possibility concerns me more than any other because it would
amount to no less than a Federal takeover of the fiscal and
financial decision-making process at the State and local level,
We would have to create a new bureaucracy, simply to concoct and enforce the guidelines as to local priorities we here
in Washington would be imposing on the Governments of the natic
We would be confronted with the sorry spectacle of duly-electec
local officials lining up outside my door, attempting to persuade me that they were carrying out their responsibilities in
a satisfactory fashion. We would, in short, be contravening
constitutionally -_ imposed principles of Federalism; principl(
which lie at the heart" of the structure of government in this
nation.
Thousands, perhaps tens of thousands, of governments woulc
resist this intrusion into local affairs. And they would be
absolutely right. But in the final analysis, theirs would be
a Hobson's Choice: Submit^to Federal control or pay the price
of independence in the bond markets. Are we really prepared t<
inflict this choice on the nation?
Finally, there are those who say that New York City is
a special case; that helping New York will not obligate us
to help other cities in the future. But we are already obligated. We are obligated to local officials throughout the
country who have risked their careers by insisting on fiscal
restraint. Would financing the deficits of New York City be
consistent with our obligation to them? And can we really
draw the line at New York City? I doubt it. "Assistance to
one city would create an intolerableprecedent for the future.
Before concluding, I must return once again to an importar
point. , As strong as our economy and. our financial system may
be, it remains somewhat vulnerable to attacks from within.
We in the Administration have done all we can to
evaluate tire risks a detault presents and, where possible, to
provide mechanisms to minimize those risks. But if I may borrow a thought from Justice Holmes, the most elaborate fire
protection system in the world may not protect theatergoers
from the man who cries "fire."

- 13 -

4%
Mr. Chairman, fiscal restraint is not an easy task for
any economic unit in our society — a person, a corporation
a partnership, a city. I do not want to deviate from the '
subject at hand, but I must point out that even we as a nation"
are not immune. Only our printing press allows us a greater
opportunity for postponement, while we daily risk mortgaging
away the financial health and prosperity of future generations
But our economy — however weakened by excesses at the
Federal level — remains able to withstand even the most sever
shocks. I do not wish a default upon New York City, i do not6
believe it has to default and I expect it to take the measures
necessary to avoid such an event. But if it does default the
economy of this nation and its financial system will survive
with enough strength not only to repair the damage, but also'
to start our greatest city along the road to recovery.

tdepartmentoftheJREASURY
IGTON, D.C. 20220

TELEPHONE 964-2041

FOR RELEASE A T 8 P.M.

A^/

E.D.T.

ADDRESS BY THE HONORABLE
SECRETARY OF THE
TO THE ECONOMIC CLUB
SEPTEMBER 2 3 ,

WILLIAM E. SIMON
TREASURY
OF NEW YORK
1975

I want to thank each of you for your kind invitation to
speak here tonight.
I have been looking forward to this
occasion for some time because I could think of no better
forum to discuss a matter of growing concern to many of us
in this chamber: the long-term prospects for the nation's
financial system.
As you know, there is an old adage on Wall Street that
"the markets are always telling you something."
Our financial
markets and institutions are a vital part of our economic
system, and as such, they generally reflect the basic health
of the economy:
if the economy is fundamentally sound and
moving ahead w e l l , the financial structure should signal
that.
If, however, there are underlying imbalances in the
economy, the system will also reflect that. The signs given
out by the markets on any single day or week may be confusing
or contradictory, but if there are pronounced trends over a
long period of time, you can ignore them only at your own
peril.
Litany of Troubles
Looking back upon the behavior of our financial system
over the past several y e a r s , it is apparent that all is not
well.
The litany of troubles which have developed should
give pause to even the most sanguine observer:
* With the economic recovery still in its early stages,
interest rates are now at levels which ]0 years ago would
have been considered extremely unlikely.
* Access to the bond markets today for all practical
purposes is limited to only top-rated companies. With few
exceptions,
a company with less than a prime rating can
no longer tap the long-term public debt market as a source
of long-term funds. Marginal companies, new growth companies,
or even solid companies with less than an A-rating -- and in this
broad group may be the Xeroxes and IBMs of tomorrow -- have
almost been totally shut out from the long-term sector.

S387

* Lenders are increasingly reluctant to make long-term
commitments and borrowers too are reluctant to take on very
long-term, high cost debt. Many more new securities today
are of intermediate duration (7-10 years) rather than 25 or
30 years duration, which was the rule not long ago.

- 2-

4ft

* Too many companies are dependent now on short-term
borrowing for what amounts to long-term expansion needs.
* At a time when over half of the securities listed on
the New York Stock Exchange are currently selling below book
value, the stock market is far from being the source of new
equity capital required for long-term needs.
* The level of corporate debt has increased significantly
over the past decade which together with the sharp rise in
average yields has added significantly to interest costs.
Debt relative to equity has nearly doubled. As a consequence,
some business firms now run a significantly greater risk.
For the highly leverage business, even a modest-sized
contraction would make it difficult to meet fixed charges
and in some instances might lead to bankruptcy because interest
commitments are fixed and must be met no matter what the
economic circumstances.
* The consumer has also an increasingly larger debt
burden, which has in some cases reduced his ability to cope
with periods of economic slowdown.
* Whole industries such as the airlines and utilities
are faced with serious financial problems.
* Many state and local subdivisions are under increasing
financial pressure.
* The loan-deposit ratio and the equity base of some
commercial banks has deteriorated.
* And the thrift institutions, which 10 years ago were
paying finders fees just to have the chance to invest in 5-1/2%
mortgages, are now worrying about maintaining their deposits*
although new home mortgage rates are running close to 10%.
I do not mean to cast a pall of gloom over our future
economic hopes. The economic recovery that began earlier
this year promises to be vigorous and healthy. If we choose
our policies wisely, the recovery will also be durable and
lasting. Moreover, I think we should be strongly encouraged
by how well the financial system has functioned during one
of the most difficult periods in modern economic history.
That performance reflects not only the basic strengths and
resiliency of our financial system but is also a tribute to
the remarkable men and women who have become the leaders of
our financial community. Many of you in this chamber tonight
should be decorated for your wisdom and courage under fire.
Nonetheless, the markets are indeed "telling us something"
today — they are telling us that the underlying foundations
of our economy are not as strong as they should be, that our
financial system is more vulnerable than it should be, and
that
in order.
we ought to waste no time in putting our economic house

//f/
These are the concerns that are the center of our
discussions within the Economic Policy Board of the Administration.
We believe that with the process of recovery solidly underway,
the time has come to mount a full-scale attack on the underlying causes of our economic malaise. We are advancing a
broad-guaged program to achieve that end. But we need your
help and the help of many other Americans if we are to
succeed.
There can be no doubt that the political opposition
will be stiff and powerful against many of the measures that
must be taken. A surprising number of people are not yet
persuaded that the battle against inflation can be won only
if we have sound fiscal and monetary policies. They do not
yet understand that capital formation means job formation,
higher real earnings, lower costs for consumers, and better
economic growth. And in some quarters, mention of corporate
profits, capitalism, and even free enterprise can bring
almost a visceral negative reaction.
What then must be done? All of us must obtain a
better understanding of the causes of our problems and how
they affect our economy. All of us must obtain a clearer
understanding of the solutions to these problems. And then
we must carry forth a message that is clear and unmistakable.
It is my sincere hope that my appearance here tonight will
contribute to that process.
Origins of the Financial Stress
The underlying causes of our economic troubles are many
and complex. A complete analysis must await the time and
insight of future historians. Nonetheless, it is not too
early to identify some of the more obvious reasons for our
current difficulties. It is now clear, for instance, that
inflation is our most fundamental economic problem, for it
was inflation that was the basic cause of the recession and
a prolonged resurgence of double-digit inflation would choke
off the recovery. Furthermore, inflation has played a major
role in weakening our financial structure, raising interest
rates and causing a pattern of underinvesting within the
economy.
Beyond recognizing the importance of inflation, we also
have a fairly clear understanding, I would suggest, of the
forces lying behind it. Our inflation and its impact on financial
markets did not just happen but were the natural and largely
predictable result of a series of occurrences which for the
most part could have been avoided.

- 4First, our Federal government has been living beyond
its means for far too long. In fiscal year 1962 the Federal
budget exceeded $100 billion for the first time in history.
By fiscal year 1971 it exceeded $200 billion. By fiscal
year 1975 it exceeded $300 billion and a figure over $400
billion is now certain in FY 1977. Federal government
outlays for the past 10 fiscal years grew 175% while total
GNP increased about 120% — that is, the growth in government
outlays was over 40% greater than that of the economy itself.
The growth in spending has also far exceeded the growth
in revenues, so that during these same years we have posted
a string of budget deficits that are unprecedented in
peacetime. And the Federal Government—including the
regular departments and agencies as well as the offbudget
agencies that have been set up over the years partly to
avoid the discipline of the budget process will have been
forced to borrow over $350 billion dollars from our private
money markets over the decade ending with the current
fiscal year. That is over a third of a trillion dollars.
Because of our unwillingness to live within our means,
we have posted a string'of budget deficits that are unprecedented
in peacetime. And the Federal Government -- including the
regular departments and agencies as well as the off-budget
agencies that have been set up over the years partly to
avoid the discipline of the budget process -- will have been
forced to borrow over $350 billion dollars from our private
money markets over the decade ending with the current fiscal
year. That is over a third of a trillion dollars that might
otherwise have been used to build new plants and to create
new jobs in the private sector.
It is no wonder that inflation has accelerated and
interest rates have risen to historic levels. When the
Federal Government runs a deficit year after year, especially
during periods of high economic activity, it becomes a major
source of economic and financial instability.
The enormous rise in government spending of the 19 60s
and 1970s has added enormously to the aggregate demand for
goods and services and thus has been directly responsible
for the upward pressures on price levels.

6*7/
- 5-

Heavy borrowing by the Federal sector associated with
the rise in spending has also been an important contributing
factor to the persistent rise in interest rates and to the
strains that we have seen in the financial markets. With
the Treasury Department standing at the head of the credit
line with oversized needs, interest rates are naturally
driven up, some private needs go unfulfilled and private
investment suffers. This is the essence of the "crowding
out" problem that could be foreseen several months ago
and has now so obviously surfaced, despite the relatively
slow pace of business activity.
An even worse result of such budgetary practices is
that continuing deficits tend to undermine the confidence of
the public in the capacity of our government to deal with
inflation. Thus, it should be apparent that a prolonged
period of irresponsible fiscal policies now lies at the root
of many of our economic troubles.
A second clear cause of current financial conditions
has been an excessive expansion of the money supply over the
past decade relative to reasonable price stability. Ultimately
this put upward pressure on the rate of inflation and interest
rates. A good deal of this monetary growth, I might add, is
related to the chronic Federal budget deficits, but another
part is attributable to anti-recessionary policies which
have often proved to have been late in timing and overly
stimulative. Needless to say, this process has contributed
to the apparent stop-go nature of the government's economic
policies.
I do not mean to suggest that a pattern of excessive
fiscal and monetary policies is solely to blame for inflation.
Higher food and energy prices have obviously had an impact
in most recent years. The Federal regulatory system has
become a heavy burden, forcing many unnecessary costs upon
producers and consumers. Devaluations of the dollar and
other actions have also played a role. But I would argue
that the underlying causes of the past decade of higher and
higher inflation rates are the clearly excessive fiscal and
monetary policies that began back in the 1960s.
The results of these policies have been clear and
disconcerting. Soaring inflation has been the cause of
a rapid growth of debt which is endangering the well-being
of some consumers, municipalities and financial institutions.
In particular, the inflation has significantly raised the dollar
cost of physical investment needs. Those higher costs, coupled

- 6-

Wb

with accounting procedures that are unable to adjust to high
rates of inflation, have forced companies to seek more and
more external financing. Together with a tax structure that
is biased against equity financing, this pressure has resulted
in an enormous increase in corporate debt to the point where it
causing too-heavy
corporate balance sheets and
increasing^ illiquidity within the companies themselves.
In fact there is now evidence
of past, underinvesting in productive facilities and where it
is questionable whether many corporations will have the
ability to finance the record capital needed in the decade
ahead.
Furthermore, the higher inflation plus the greater
volatility in interest rates related mostly to government
policies has understandably made lenders more leary about
long-term commitments. Higher interest rates are demanded and
received to hedge against future inflation and to compensate
for sharp, unanticipated changes in yields. Moreover,
shorter maturities are routinely requested in order to hedge
against the possibility that future rates of inflation might
be higher than those anticipated.
The combination of the rise in the cost of funds, the
hostility in some areas towards corporate profits, and
increased uncertainty about future returns has caused corporate
treasurers to focus primarily on projects with high returns
and reasonably assured payouts, accentuating the pattern of
underinvesting. Many projects which would have been undertaken
in previous years are now passed over.
In recent years, in fact, inflation has led to a
pattern of underinvesting which in turn has resulted in
much lower gains in worker productivity. From 1948 to
1966 productivity increased by 3.5% per year on average.
From 1967 to 1974 the rise has been only 1.7% — less than
half the previous rate. By almost every reasonable comparison
that can be made between past and recent levels of productivity,
the net conclusion is the same: there has been a sharp
falloff in the growth of output per manhour over the past
decade. This has intensified our inflation problem, has hurt
corporate profits, has resulted in lower growth than was
necessary, and has greated retarded the increase in worker
living standards. It cannot be said often enough that our
major source of productivity gains is from more capital and
it is only through productivity gains that real living
standards can be improved.

<99s
- 7To some degree, the financing problem that I have
been discussing is even adversely affecting the current
recovery in business activity. High interest rates are
already slowing the flow of savings into thrift institutions
and hence the new flow of home mortgage money.
Thus inflation has been a basic cause of a long series
of unhappy economic events — the pattern of stop-go behavior,
rising interest rates, slow real growth, disappointing
worker productivity, higher risks of corporate bankruptcies
and a body politic calling for some quick cure all that
doesn't exist. It should come as no surprise that our
financial structure -- still a wonder in terms of the amount of
credit it processes and the efficiency with which it allocates
fund to different users -- is feeling a serious strain.

4?¥
- 8 The Future Demands on the Financial Structure
As you know, a basic economic function of the financial
system is, of course, to channel the enormous flow of capital
into its most productive uses. It is the transmission mechanism that encourages the accumlation of real physical capital —
factories, housing, tools, et cetera. That capital in turn
creates new jobs, enables workers to be more productive,
generates a higher real living standard, helps us to meet
foreign competition, restrains the pace of inflation, promotes
a growing economy, and enables us to meet expanding demands
from the public. Investment capital thus provides the
driving force behind economic growth, and it can work effectively
only if our financial markets are working smoothly.
To determine whether we will reach our future goals, we
must therefore first estimate what our capital investment
needs will be and then see whether our system will produce
those funds and whether it is also capable of handling the
financing flows required for that investment. In my judgement,
the answer is that the financial system can rise to this
challenge, but only if we chart a new and significantly
different course.
By every available standard, our future requirements
for capital are enormous.
The most immediate need for more capital is to create
jobs for our rapidly growing labor force. Between now and
1985 the labor force will expand by roughly 15 million
persons. In addition, there are at least 3-4 million unemployed
persons in the labor force today who must be reemployed.
By comparison to the 18-19 million jobs that will thus be
needed in the coming decade, our economy created approximately
13 million jobs during the past decade. Recognizing that
excess capacity now exists in the economy, the task ahead is
still very formidable indeed.
In addition to the challenge of creating new jobs, a
second broad set of capital needs ahead center around specific
public policy objectives: the development of new energy
resources to become more self-sufficient; an improvement in
the quality of our environment; safer working conditions to
protect the well-being of our work force; the provision of
more and better quality housing to satisfy the needs of a
growing population; and the need to replace old production
facilities in order to remain competitive internationally.

4#±
- 9 The list could go on and on. Of course, there is no single
"correct" dollar total that can be identified with these
outlays. But we can be certain that the levels are extraordinary. In the energy field alone, some estimates of
capital needs over the coming decade are close to $1 trillion.
Together, these two broad categories imply total
private investment outlays between $4-4 1/2 trillion over
the next decade. By contrast, the cumulative total over the
past decade was $1.5 trillion. Thus, you can see that our
capital expenditures in the decade ahead will have to be
roughly three times as large as those of the past decade.
This sounds enormous but it is manageable in view of the
growth in the economy ahead. In essence, savings must be
increased from a bit over 15% to almost 16% of Gross National
Product — a feasible task given proper policy steps.
Whether the financial mechanism can handle the huge
flow of savings, investment and credit associated with these
capital needs is, however, an open question. The rise in
corporate debt over the past decade, carrying with it increasing
fixed payment obligations, raises nagging questions about
the ability to finance future capital outlays. It is just
not clear whether the system can indefinitely accommodate a
continued rise in debt relative to assets and equity.
Indeed, further increases in leverage and repeated declines
in coverage ratios will eventually cause credit ratings to
deteriorate and interest costs to rise. The system could
become quite illiquid with increasing risk even in the face
of just a modest recession. If chronic Federal budget
deficits continue to drain the savings pool, we will have
less investment, lower productivity, higher interest rates,
and higher inflation. At the top of the list of those who
would be hurt are the traditional thrift institutions and
along with them the housing industry. Small banks, insurance
companies and other would also soon feel the strain.
In my view, as I have said, our ability to meet these
capital requirements and the ability of the financial system
to accommodate these needs will only be assured if there are
pronounced shifts away from past public policies. What we
need are government economic policies that are going to allow
the financial mechanism to perform its functions and encourage
sound, stable growth.

A76
- 10 General Policy Needs
I would like to offer four concrete suggestions for
future policy directions ~ directions to which President
Ford and this Administration are committed.
First, we must be sure that we have eliminated the
stop-go behavior on the part of the government in setting
and pursuing economic policies. Such policy changes have
typically been a response to short-run developments in the
economy, and because there is a lag between the development
of a new policy and its impact on the economy, abrupt policy
changes tend to come too late to accomplish their original
goal. At times, rather than acting to stabilize the economy,
such shifts have tended to accentuate the economy's basic
cyclical swings and thus become destabilizing. Actions that
gain spectular economic results for the near term cannot be
the panaceas for our government if they risk moving the economy
off the path of sustainable, long-term growth. Good economics
is good politics.
In pursuing greater stability in our policies, we should
also shift away from past practices of relying upon government
spending and general tax cuts to stimulate the economy
while using tight money to slow it down. This practice has
in effect meant that we have stimulated consumption for
expansion and retarded investment in order to slow the
economy. Over time, such a mix creates an inadvertent
but still significant anti-investment bias to government
policies which is inappropriate to our long-term capital
needs and to the very functioning of our financial structure.
At a minimum, the growth in government spending must
be brought into closer line with the growth of the economy
and we should aim for a surplus budget position at high
employment levels in order to reduce the government's drain
on the private saving stream. The country cannot afford to
have the Treasury use its superior credit rating to deprive
private borrowers of needed funds. To do so would frustrate
the accumulation of sufficient capital resources relative to
our needs and would impose growing pressure on an already
weakened financial mechanism.
Secondly, we must maintain a consistent effort to reduce
the rate of inflation — not just to the 6-8% range but
eventually to something much lower. And with that effort,
we must also loosen the grip of the inflationary psychology

A9?
- 11 that is now so strong. Parts of our financial structure as
it now exists will not remain viable with sustained high
single-digit inflation, let alone a double-digit pace. The
key to reducing inflation, as I have said over and over again,
is to maintain sound, responsible fiscal and monetary policies.
If the Government were to do only that during coming years,
it would do far more to help the people of this country than
any number of assistance programs can ever dream of accomplishing.
Third, we must achieve fundamental reforms in our tax
system — reforms that will provide an essential insurance
policy against future economic contractions; reforms that
will help to redress the imbalances in corporate balance
sheets and broaden equity ownership; and reforms that will
encourage the levels of savings and capital investment that
are so vitally needed for our future. The increasing
aversion to risk taking in the lending and investing process
must be arrested.
Toward those ends, the Administration just over seven
weeks ago proposed to the Congress a "Tax Program for Increased
National Saving." This proposal would eliminate the double
taxation of corporate earnings which results from first taxing
corporate incomes and then taxing individuals who receive
dividends. I strongly believe that this proposal — which
has already been adopted in most of the other major industrialized
countries -- would make a significant contribution toward meeting
our capital needs of the future. Moreover, it is the only major
tax proposal of which I am aware that comes to grips with the
growing imbalances between corporate debt and equity.
Some critics have attacked this program for its alleged
bias toward wealthy investors. They accuse us of favoring a
"trickle down" approach which would concentrate benefits among
corporations and rich individuals, whose increased wealth would
slowly work its way down to the broader base of workers and lowincome groups. Such criticism typically claims that this is
socially unfair and that there is so much "leakage" along the
way that those at the bottom receive too little too late.
If this were in fact an accurate description of either
the workings of the U. S. economy or my recommendations for
encouraging capital investment, then I would join the critics.
In reality, however, the U. S. economy has created the highest
standard of living in the world: the average family income
approached $13,000 in 1974; the level of poverty has been significantly reduced within our population; jobs have been created

- 12 for 86 million people; personal expenditures continue to represent about two-thirds of our GNP; and Federal income maintenance
and security outlays have soared to $118 billion a year. This
is no small trickle. Indeed, it is clear that the American
economic system has provided the most effective "flow through"
of benefits of any system ever devised. The critics may engage
in as much sloganeering as they want, but they will never refute
hard reality.
As for our tax recommendations, they are not biased for
or against personal consumption. I certainly do not want to see
any sharp' reductions in consumption. The strength and durability
of the current economic recovery is directly dependent on the
pace of consumer spending over the next several quarters. My
point is simply this: over the past decade we have had a most
unsatisfactory experience in terms of unemployment, inflation,
productivity and international competitiveness; if we want to
achieve better results over the coming decade, then we must
first "tilt" upwards the share of national output committed to
capital investment. Only by increasing the share of investment
will we successfully create enough jobs and meet our future
economic goals.
The fourth and final recommendation that I would set forth
tonight is the responsibility not just of our Government but of
all of us who are concerned with the future of our country.
With your help and the help of many others, we can devise the
best possible policies to deal with our economy — policies such
as the ones that I have just outlined — but those policies will
ultimately fail unfless they have the broad-based support of the
American people. The opinion polls that all of us see from time
to time on public attitudes toward private business only confirm
what we know from daily experience: that our business institutions,
just like most other institutions within our modern society, do
not enjoy the full faith and trust of the American people. If
anything, public misunderstandings about profits, capital investment and the like are growing, not receding. Yet I also believe
that this period of recession and high inflation provide us with
an opportunity to reverse these trends, because people are confused now and they are looking for answers. Who is in a better
position to provide those answers than those who are the leaders
of our economic and financial communities? Who can explain the
free enterprise system more honestly and completely than those
who have been successful working within it? And who are these
leaders? Many of them are here in this chamber tonight. It is
now our responsibility, I would suggest, to go to the American
people and lay it all on the line. With the stakes as high as
they are today, we have no other choice.

- 13 -

#??

Conclusion
What does all this mean? It seems to me that the financial
markets today are most assuredly telling us something about the
behavior of our economic and financial system. Something is unquestionably out of balance. Our trouble certainly does not mean
that collapse or even crisis is near at hand nor that the financial
system cannot play its part in bringing about the huge savings and
investment needs of the next decade. But it does mean that we
have to change our ways. Inflation must be sharply reduced.
Government policies must be redirected toward longer-term time
horizon and shifted toward a better mix or fiscal and monetary
policies than existed over the past decade. And the tax bias
against capital formation must be redressed.
If these steps are taken, we can look forward to better
growth, more jobs, higher incomes, a closer fulfillment of our
broad public policy goals, a lower rate of inflation, a more
stable economic system and a robust financial structure. If
we fail to act responsibly — through inertia, political
differences or just plain misjudgment — then we can look forward to continued trouble. There will be higher inflation,
lower growth, frustrated ambitions, and continued erosion of
our financial base; ultimately, we could deliver a staggering,
if not lethal, blow to our economic and political systems as
we have known them.
The latter scenario sounds pessimistic, but let us be clear:
it is certainly not inevitable. We know fairly well how we got
into the current economic situation. It has not resulted simply
from external problems such as OPEC pricing policies or disappointing Russian crops, but primarily from many years of shortsighted internal policies. We also know how to get out of the
current situation and that is by pursuing sound, prudent policies.
In coming months, as the recovery progresses, the improved economic
environment may tend to camouflage some of the conditions that I
have described. But we should not be lulled into complacency:
these are serious, deep-seated problems that will require time
to understand and even more time to untangle. Patience, understanding and support will all be demanded from the public. But
I have faith that if the American people are told the truth, if
they can gain a clear understanding of these complex difficulties
and are not fooled by the apologists for more and more government
spending, then we will meet our current and future needs. This
country has always been at its best when the challenge was greatest.
That must be our goal today. When the time comes to turn this
country over to our children, let it be said that this generation
of Americans, like those of the past, did not flinch in the
shadow of a great challenge but instead rose up to meet it squarely.
Thank you.
0O0

5^v
CONTACT:
FOR IMMEDIATE RELEASE

JACK MONGOVEH
964-8191
September 25, 1975

TREASURY ECONOMISTS VIEW INFLATION
AS GREATEST RISK TO RECOVERY,
ACCORDING TO SEPTEMBER'S TREASURY PAPERS
A new round of inflation at this stage of the recovery
is the principal risk to a continued economic upswing, senior
Treasury economists have written in the September edition of
the Department's monthly publication, Treasury Papers.
Noting that recent measures of economic activity indicate
that the economy has rebounded strongly from the recession,
H.I. Liebling, a senior economic adviser, said that "only a
resurgence of inflation might deflect its course from a path
of sustained and robust growth in the period -ahead."
Liebling said the pattern of the 1974-75 recession and
the subsequent recovery was similar to other recent economic
downturns. "The principal risk," he commented, "would appear
to be the impairment of confidence arising out of renewed
inflation rates."
Sidney L. Jones, Assistant Treasury Secretary for Economic Policy, said in a separate article that because the
"immediate pattern of business investment will be largely
determined by the strength of personal consumption, it is
crucial at this stage of the recovery that a surge of new
inflation pressures be avoided."
An escalation of prices during the next few months -or of inflationary expectations -- "would quickly disrupt
both personal and business spending plans which would, in
turn, curtail both the strength and sustainability of the
recovery," he declared.

- 2Jones said the nation must "guard against fiscal and
monetary excesses" and called for increased business capital
investment to continue expansion and create productive
capacity and jobs.
Treasury Secretary William E. Simon in the September
issue reported on progress made on monetary reform and aid
and development goals, as recorded at the recent meetings
in Washington of the International Monetary Fund and the
World Bank. He warned against overly stimulative policies
that would boost prices, noting that "history is littered
with the wreckage of governments that have refused to face
up to the ravages of inflation."
Other features in the September Treasury Papers include
the Secretary's testimony on the Government's Emergency Loan
Guarantee Program, involving Lockheed Aircraft Corporation;
a report on Treasury's new program to send Federal benefit
checks directly to banks, by Fiscal Assistant Secretary
David Mosso; a press briefing by Assistant Secretary David
R. Macdonald on Treasury's inquiry into auto dumping charges
against foreign countries; and a graph contrasting the
sharply rising prices charged by the OPEC with prices of the
cartel's imports.
Treasury Papers is a review of economic policy developments compiled from speeches, testimony, news materials and
other statements, and is available upon request at Treasury
Papers, Room 2313, Main Treasury, 15th and Pennsylvania Avenue,
N.W., Washington, D.C. 20220. Telephone 964-2041.

FOR RELEASE UPON DELIVERY

September 25, 1975

STATEMENT OF THE HONORABLE EDWIN H. YEO, III,
UNDER SECRETARY OF THE TREASURY FOR MONETARY AFFAIRS,
BEFORE THE SUBCOMMITTEE ON DOMESTIC MONETARY POLICY OF THE
HOUSE COMMITTEE ON BANKING, CURRENCY AND HOUSING
Thursday, September 25, 1975
Mr. Chairman, I am happy to appear before this Committee
to present the Treasury Department's views on the several bills
before the Committee which would require the payment of interest
on Treasury tax and loan accounts. The Treasury is in complete
support of the idea of providing a satisfactory return on
Treasury funds deposited in Treasury tax and loan accounts at
commercial banks. We strongly believe, however, that the
accomplishment of this objective through the authorization of
the payment of interest on deposits as proposed in the bills
is a less desirable approach than one which would provide the
Treasury with authority to invest its temporarily excess
checking account balances on a short-term basis. We therefore
wish to present to the Committee for its consideration a
substitute bill which we believe will fully satisfy the
Committee's purpose. The substitute bill being presented to
you today is identical to the proposed legislation which Secretary
Simon forwarded to the Speaker of the House on May 21, 1975, and
WS-388

- 2 -

^3

which, if enacted, would authorize the Treasury to invest tax
and loan balances in money market instruments for cash management
purposes.
Of the bills before the Committee, H.R. 3035 is the most
detailed and we will, therefore, compare our proposal with that
bill. In our opinion the differences in H.R. 3035 and the
proposed substitute bill are simply in the techniques to be
followed. I would like, therefore, to first discuss substance
and then to compare the techniques which each of the bills proposes.
The Treasury Report on a Study of Tax and Loan Accounts,
which was sent to the Congress on July 1, 1974, concluded that
the implicit costs to the Treasury of maintaining tax and loan
accounts had risen substantially beyond the value to the Treasury
of applicable services rendered by banks. The report recommended
that for purposes of monetary management, the tax and loan system
be retained, but that means be developed for (1) employing a
portion of the funds in ways that provide adequate returns to
the Treasury, and (2) compensating banks, by fees paid from
appropriations, for a limited number of services performed.
The Treasury has no authority to invest temporarily surplus
cash except in time deposits. The 30-day minimum maturity for
such deposits has made that course of very limited value. We,

-3-

sty

therefore, explored various alternative ways of recouping
earnings on our balances through procedures potentially available
under statutory authority of the Federal Reserve Board. Since
this has not been productive, it seems essential that additional
legislative authority be obtained to make possible the most
efficient employment of temporarily surplus Treasury cash.
In the interim, we have been able to minimize the difference
between the value of tax and loan balances and the value of
services provided by the depositaries maintaining such balances.
This has been accomplished by a sharp reduction in tax and loan
account balances. From October 1, 1974, through August 31, 1975,
daily balances in tax and loan accounts have averaged $1.4 billion.
In prior years such balances had averaged about $5 billion. While
this action of reducing balances has resulted in a reasonable
equilibrium between the value of balances and the value of
services, it has been accomplished at the expense of seriously
complicating the Federal Reserve System's management of bank
reserves and other monetary aggregates. We have achieved
equilibrium of costs and revenues at the expense of inducing
disequilibrium in the money and capital markets, a disequilibrium
that has created uncertainty in the market place with consequent
higher interest rates and higher Treasury borrowing costs. What

- 4 -

ftfS-

has happened is that the swings in the Treasury's cash balance
at the Federal Reserve Banks have forced the Federal Reserve
System to drastically increase its open market operations in
order to nullify the impact of the swings on bank reserves.
This has created confusion in the market as to which Federal
Reserve actions are to offset swings in Treasury cash and
which are to carry out monetary policy.
A more effective solution would be to invest Treasury
cash and to pay for services. Surely no one can disagree with
the principle of investing surplus cash at an appropriate
interest rate and paying appropriate fees for services rendered.
The issues are what form the investment takes, what is an
appropriate rate of interest, and what are appropriate fees.
In general terms, an appropriate interest rate and fee structure
would be one that covers all costs of handling the tax and loan
account and providing other compensable services, including the
cost of capital and other overhead costs. Whatever technique
is used and whatever rate of interest is applied, we must
provide enough incentive for banks to continue to maintain tax
and loan accounts.
We believe that the objectives of the Federal Reserve's
monetary management and an efficient Treasury collection system
will best be accomplished by lending to each depositary maintaining

- 5 -

S9>

a tax and loan account any balances in excess of the Treasury's
operating needs. These loans would be secured by a pledge of
collateral and would bear interest at rates related to the
Treasury's short-term borrowing costs and to the depositary's
short-term (day-to-day) investment potential for such funds.
In this way, the Treasury would not actually be entering the
market as a lender of funds and the impact on money market rates
would be essentially neutral. This plan of investment, however,
might not at all times or for the full amount of investable
funds be the best way of accomplishing the stated goals. We
feel that it is desirable, therefore, to provide for other
investment authority, that is, authority to invest directly in
Treasury and agency securities as stipulated in the Treasury
proposed bill.
This plan of investment of Treasury cash in earning assets
will involve providing additional compensation to depositaries
for certain services performed. In the Treasury's area of
responsibility, these services involve the maintenance of the
tax and loan accounts themselves, acceptance of Federal tax
deposits credited to such accounts, and the issuance and
redemption of savings bonds. In the handling of tax and loan
accounts and related tax deposits, banks will be compensated by
means of a credit against interest on the loans or by direct

-6-

&7

fee payments should the costs incurred by a bank exceed the
interest value of the Treasury loan to the bank. Compensation
for the issuance and redemption of savings bonds would be
accomplished by the payment of fees from appropriated funds and
budget requests by the Treasury will, therefore, include
additional amounts to cover the payment of such fees.
H.R. 3035 gives the Treasury the unique privilege of
receiving interest on a demand account — a privilege not
available to any other depositor. The Treasury proposal, on
the other hand, gives the Treasury a privilege already available
to corporate treasurers and treasurers of state or political
subdivisions. Regardless of the merits, the payment of interest
on demand accounts is a controversial issue, and to ask for an
exception for Treasury accounts, where that exception is not
needed, would needlessly jeopardize the achievement of the goal
of earning a reasonable rate of return on tax and loan balances.
There is another difference that exists between the two
proposed bills which has a significant effect on the Treasury's
return on the investment of its surplus funds. The Treasury
proposal, in essence, provides for secured Federal fund loans
to banks, a type of loan that is not subject to reserve requirements. The maintenance of demand accounts provided for in H.R.
3035 would, of course, subject the balances in those accounts to
reserve requirements. The fact that borrowed funds are not subject

- 7 -

&f

to reserve requirements would make the investment income to
banks of such borrowings greater than the investment return
on an equal amount of balances. Banks could, therefore, afford
to pay the Treasury a higher rate of interest on borrowed funds
than on deposits. Of course, the Congress could stipulate that
the tax and loan account balance be exempt from reserve requirements of the Federal Reserve System. Here again, this would be
a special exemption for the Treasury. Furthermore, the elimination
of reserves could apply only to member banks since reserves for
State'^ion-member banks are subject solely to state law.
Since the Treasury proposed-legislation is not specific as
to the.technique or to the interest rate, both of which we feel
must have the flexibility of being established and maintained
administratively, I would like to outline how we propose to
proceed if the Treasury bill is enacted.
We would adopt a procedure whereby each bank maintaining
a tax and loan account would continue the present practice of
crediting to the account each day all tax deposits received that
day and all proceeds of the sale of savings bonds under current
schedules as established by the Federal Reserve Banks. At the
close of business each day, each depositary would forward an
advice of such credits to the Federal Reserve Bank of its District
with the amount of credits being automatically added to an

open-ended note payable by the bank to the Treasury.

As the

Treasury needed cash to fund its accounts at Federal Reserve
Banks, we would call for payments on such notes in the same
way that we now call on balances in tax and loan accounts.
Interest due on the notes would be payable monthly and would be
computed by applying a specified rate of interest to the average
daily amount of the note. Interest for each month would be
credited to the bank's tax and loan account as of a specified
date in the following month. Each depositary would be required
to pledge collateral for the outstanding balance of its note
in the same way that it now pledges collateral for the balance
in its tax and loan account.
In the Treasury Report on the Study of Tax and Loan Accounts,
we expressed an inclination toward the use of Treasury bill rates
as a base for establishing the rate of interest to be paid by
depositaries on the notes. Upon further study, we are now of the
opinion that the rate should also be related to the Federal funds
rate since that rate is at this time the best measure of the
value of one-day funds to depositaries. We feel strongly,
however, that the statute should not specify the rate since
swings in money market rates, with, for example, the Federal
funds rate moving around the Treasury bill rate, could conceivably

- 9-

5?^

make any fixed formula unworkable. Looking back over the past
several years, we feel that the Federal funds rate, less about
1%, would have been an appropriate rate for larger banks. For
smaller banks, some other measure might have been better since
their opportunity to invest on a day-to-day basis is not equal
to the larger money center banks.
In conclusion, Mr. Chairman, the Treasury objective is to
earn a reasonable return on its temporarily surplus cash and
to provide fair compensation to depositaries for services
rendered the Treasury. I hope that what I have said makes it
clear that the technique embodied in the Treasury substitute
proposal would best accomplish these objectives.
Thank you, Mr. Chairman. I will be happy to respond to
any questions.

Department of the Treasury Proposed
Substitute Bill

A BILL
To authorize the Treasury to invest for cash management
purposes.
Be it enacted by the Senate and the House of Representatives of the United States of America in Congress
assembled, That the Secretary of the Treasury is authorized,
for cash management purposes, to invest any portion of the
Treasury's operating cash for periods up to 90 days in
(1) obligations of depositaries maintaining Treasury tax
and loan accounts secured by a pledge of collateral acceptable
to the Secretary of the Treasury as security for tax and loan
accounts, and (2) obligations of the United States and of
agencies of the United States.

6~J/^
FOR RELEASE ON DELIVERY

v

STATEMENT OF THE HONORABLE WILLIAM E. SIMON
SECRETARY OF THE TREASURY
BEFORE THE SUBCOMMITTEE ON INTERGOVERNMENTAL
RELATIONS AND HUMAN RESOURCES OF THE
HOUSE COMMITTEE ON GOVERNMENT OPERATIONS
SEPTEMBER 25, 1975, 10:00 A.M. EDT

Mr. Chairman, I am pleased to appear here today to
testify in support of H.R. 6558, which would renew the
General Revenue Sharing program. The Administration believes
that revenue sharing has worked exceptionally well in responding to the needs which it was designed to meet. We strongly
urge that the program be continued in its broad general outlines, -as President Ford proposed in his message to Congress
on Apri^l 25 of this year.
Since General Revenue Sharing was enacted in October
1972, it has made available over $20 billion to States and
communities throughout the Nation. These funds have done
much to strengthen the viability of our Federal system of
Government, a system that is predicated upon the shared
exercise of powers and responsibilities. A strong working
partnership between Federal, State, and local government
is necessary if our democracy is to respond effectively to
the needs of our citizens. The General Revenue Sharing
program has been the foremost of a number of recent initiatives to improve the way in which tne governments in our
system can work together to meet these needs more effectively.
Revenue sharing combines the efficiency of the Federal revenue
raising system with the experience and the accountability that
comes from allowing locally elected governments to set priorities for their own States and communities.
WS-389

When support was growing for the enactment of the current
revenue sharing program, our State and local governments were
struggling with inadequate and regressive tax resources to
meet the mounting demand for services being placed upon them.
While Federal categorical aid programs of various types we~e
available, they did not provide a help for many of the problems facing local governments. Federal grants often did
not go to support basic services, such as sanitation or fire
protection, where help was often needed. At the same time,
the then available Federal aid programs had the effect of
making recipients adjust their own priorities to areas where
grant money was available. An additional burden often present was the need to match the Federal contribution with
State and local funds. These characteristics of the aid
programs that existed prior to revenue sharing produced a
stifling effect on the creativity and accountability of
State and local governments. In enacting General Revenue
Sharing, Congress wisely concluded that a new type of generalized, "no-strings" federal assistance was needed to get
us back on the road to a sounder Federalism.
The revenue sharing funds distributed over the three
years the program has been in existance have helped States
and communities maintain vital public services and stabilize
the crushing burdens of taxes -- often real property and
sales taxes that fall particularly hard on low income families
and the elderly.
The flow of shared revenues has increased the capacity
of our 50 State governments and of almost 39,000 units of
local government to meet many urgent needs. The program is
vital to both our large-core cities, faced with acute fiscal
probLems, and to smaller communities, which are often not
participants in other Federal programs. Improved libraries.
better police and fire protection, more extensive emergency
health and accident assistance, and more adequate local
transportation systems have all resulted from the availability
of shared revenues. It appears that something like two-thirds
of the money distributed through revenue sharing has been used
to support the day-to-day operations of government. This is
especially true in the case of hard-pressed center cities.
The balance has been devoted to capital projects and the

- 3 purchase of equipment, necessary expenditures which can often
fall victim to unforeseen budgetary constraints.
Mr. Chairman, recognizing the accomplishments of the
revenue sharing program and the continuing need of State and
local governments for this type of generalized Federal assistance, we believe it imperative that the program be reenacted.
Members of this Committee know full well that I am a firm
opponent of dramatically increased Federal expenditures
because that spending, in my judgement, would only fuel the
fires of inflation and in turn might trigger another recession. I also oppose efforts to place additional unnecessary
Federal shackles on any unit of our society, including State
and local government. One virtue of the General Revenue
Sharing program that I am supporting here today is that it
represents a continuation of present spending levels -- not
a dramatic increase. It is also one of the few major programs
enacted in recent years that actually lessens the burden of
Federal regulation and permits our citizens and institutions
to regain greater control over their own destinies. I wish
the same could be said of more Federal programs.
Furthermore, I think we should recognize that recipient
governments have now built funds from the General Revenue
Sharing program into the fabric of their budgets. State and
local governments combined now depend upon Federal assistance
for well over twenty percent of their resources, and for
many jurisdictions General Revenue Sharing represents a large
proportion of those funds. About one-quarter of all direct
Federal aid to cities, for instance, is now derived from
General Revenue Sharing.
In view of the current fiscal squeeze that State and
local governments are feeling, this is no time to begin
pulling the plug on Federal support. If revenue sharing
payments were reduced or terminated, the impact on State
and local governments would be severe and our efforts to
assure economic recovery would be dealt a serious blow.
Governments would be forced either to cut back further on
services and public employment or to increase taxes and
borrowing. Either course of action would defeat the
objectives of recent Federal efforts to reduce the tax
load and stimulate real economic growth. In fact, it is

(/

imperative not only that revenue sharing be continued, but
that action to do so be undertaken as quickly as possible.
We must do all we can to assure the mayors, the county
councils, and the governors of our Nation that they can
count on revenue sharing in their future budgetary planning.
State and local decision makers are already beginning to
chart their 1977 budgets, and they need to know this fall -not next year -- whether the Federal Government will still
be willing to help.
After carefully reviewing the recommendation of an
interagency study group, President Ford requested that
Congress renew revenue sharing in its existing general
outlines. The President's decision was based upon conclusions about the broad successes and the continuing need
for the program which I have just outlined. We believe our
recommendation represents a balanced proposal which takes
into account the needs of the State and local governments,
the needs of the Federal Government, and the concerns
expressed in independent evaluations of revenue sharing.
I would now like to review some of the important details
of our proposal and explain the reasons why we are recommending
that certain portions of the current program be continued while
others are changed.
We are proposing that the new revenue sharing program
run for five and three quarter.years. A multi-year appropriation would be made for its full length. It is our view
that this approach will offer a considerable measure of stability and certainty to recipient governments, while still
allowing for review and adjustment in light of circumstances
a few years hence. We rejected two extreme alternatives
that others have suggested -- annual appropriations and a
permanent trust fund arrangement.
To enable multi-year funding, H.R. 6558 would exempt
General Revenue Sharing from annual appropriation procedures
set out in the Congressional Budget Act. Another provision
in our legislation requires that the Secretary of the Treasury
submit recommendations to Congress concerning further extension two years before the proposed renewal program expires.

- 5This requirement will assure that Congress has an adequate
opportunity to again evaluate the program's performance.
The Administration considered various amounts and
methods of funding for the GRS program. These included
(1) fixing the funding level at a portion of adjusted gross
income based on Federal tax returns; (2) price-adjusting
the appropriation level to reflect the cost of living
index; (3) providing for various annual stair-step increments greater than $150 million; and (4) continuing the
$150 million stair-step increases set out in the present
program.
We concluded that the existing funding mechanism offered
the most balanced solution to this question. While providing for a moderate expansion of the program, it does not
ignore the need to "hold the line" in Federal spending.
Tying funding levels to the income tax base or to the CPI
as suggested above, would likely have led to much higher
program costs.
Undoubtedly, Mr. Chairman, the thorniest issue of revenue
sharing renewal, both technically and politically, is how
funds are to be allocated among recipient jurisdictions.
Besides the basic_formulas for the allocation of funds among
and within States, several other mechanisms have an extensive
impact on the relative sizes of entitlements. The most
important of these are the split of funds between State and
local governments and the constraints imposed on the intrastate formula.
In our review, we looked at a large number of alternative
formulas, including those resulting from the Brookings Institution monitoring effort. We have continued to review the
additional studies of the allocation formulas, sponsored by
the National Science Foundation, as they have become available. We have observed that there is little consensus as to
which formula changes would be most constructive.
The Administration decided to propose the retention of
the existing formulas for distribution of shared funds among
and within States. We recognize that the existing formulas

&1
are a product of competing philosophical, geographic, and
jurisdictional interests. But we have found considerable
evidence which indicates that the present formulas are
basically equitable in meeting the needs of recipient governments. It would be difficult to design and win political
acceptance for an altered national formula which could better
respond to varying governmental and fiscal situations across
the country. Several NSF-sponsored research efforts have
indicated that the existing formulas do respond to need in
the manner Congress intended. Other studies evaluating the
formula on its own merits have concluded that the distribution
pattern among localities does well in reflecting both need and
fiscal effort.
Findings by the Brookings Institution, ACIR, and the GAO
indicate that, in general, greater per capita revenue sharing
allocations go to poorer, as compared to richer, States. For
example, Brookings indicates that for 1972, governments in
Mississippi received $39.90 per capita as compared to $28.05
for California. Brookings and ACIR conclude that hard-pressed
center cities derive greater per capita benefits from revenue
sharing than do their wealthier suburbs. An ACIR study made
the following comparison, using Fiscal Year 1974 data: Los
Angeles received $12.56 per capita; Beverly Hills' share came
to $4.33. Chicago's entitlement came to $19.89; Winnetka
received $3.68 per capita. Cleveland had available to it $18.13
per capita, while Shaker Heights received $2.97. Milwaukee was
granted $19.38 per capita under revenue sharing, while Fox
Point was awarded $4.55. The contrast noted above is not
principally dependent on the fact that the more wealthy suburbs
were chosen in the illustrations. The average entitlement for
all suburbs of Los Angeles was $6.14 per capita. For Chicago's
suburbs generally it was $6.55. For jurisdictions in the suburban Cleveland area it was $6.49. For suburbs of Milwaukee the
percapita amount distributed was $6.47.
We are asking that the existing manner in which revenue
sharing funds are divided between State governments and their
political subdivisions remains unchanged* The current two to

57/
- 7 -

one split in favor of localities is uncomplicated and is not
far out of proportion to the total division of direct government expenditures nation-wide. It also reflects the greater
fiscal need and lack of budgetary flexibility often found at
the local level of government. To alter the one third-two
thirds split would have a disruptive impact on many jurisdictions .and would be politically and conceptually difficult
to bring about. Finally, since most States transfer large
portions of their financial resources to localities, this
issue may be considerably less important than it at first
glance seems.
While we do not seek changes in the basic allocation
formula, our bill would raise the average statewide per
capita allocation limit on local entitlements from 145
percent to 175 percent in five steps. This would allow
the intrastate formula to allocate fund more freely in
line with its own definition of need. Some needy governments, in a number of cases large cities, would benefit
from such a change. Since the change would be phased in,
other jurisdictions would be protected from serious losses
by the annual $150 million increases in the total funding
of the program.
We found that a further increase in the maximum constraint beyond 175 percent or a reduction below the 20
percent minimum per capita floor on local entitlements would
not have the beneficial results for needy urban areas, often
predicted. Removal of, or a reduction in, the 20 percent
minimum per capita constraint does not free up very much
money for redistribution in most States. Raising the 145
percent maximum higher than 175 percent often has little
positive impact since most governments are restrained below
that level. Additionally, remaval of, or further adjustments
to, the limits will often produce very undesirable results.
These include sharply reducing entitlements for many jurisdictions in a State, directing excessive funds into resort
areas and industrial enclaves and granting a disproportionate
increase in funding to one large city in a State at the
expense of other sizeable cities.
The Administration fully endorses the desire expressed
by numerous members of Congress and by various civil rights

- 8 groups that the General Revenue Sharing program not serve,
in any way, as means by which to avoid the antidiscrimination
provisions of Federal statutes. In our review of revenue
sharing, we concluded that the strong civil rights provisions
of the State and Local Fiscal Assistance Act are generally
adequate to provide these important protections. We felt,
however, that the renewal proposal should specifically set
forth the remedies available to the Secretary of the Treasury to assure that shared revenues are not used to support
discriminatory activity.
The proposed renewal statute specifies that where
discrimination is found the Secretary of the Treasury will
have the option of withholding the entire amount of a recipient's entitlement or of limiting the withholding to those
funds directly involved in the discriminatory program. The
Secretary is also specifically authorized (1) to terminate
the eligibility of the jurisdiction to receive one or more
future payments and (2) to require repayment by a jurisdiction of revenue sharing funds expended in a discriminatory
program or activity.
Two ends would be accomplished by these changes. First,
it is arguable that the present statute, through references
to Title VT of the Civil Rights Act of 1964, limits withholding and termination to the local program or portion of
funding for which there has been a finding of noncompliance.
It can also be argued that since Title VI does not authorize
repayment, the existing GRS statute would not permit this
either. As a result, present revenue sharing regulations,
by authorizing both repayment and the withholding of the
entire entitlement, might be said to exceed what is permitted
under section 122 (b) (2) of the Act. The change proposed
would explicitly authorize both actions. Our primary goal
here is to eliminate possible confusion and counterproductive litigation.
The second end accomplished by the amendments embodied
in H.R. 6558, would be the establishment of a more flexible
usable tool for enforcement. Such flexibility is needed in
the case of revenue sharing, because of the many ways in
which funds can be utilized by recipients.

- 9 In cases where it is appropriate to withhold only part
of a jurisdiction's entitlement, such action lessens the
unnecessary harm caused to citizens benefiting from funds
not utilized in a discriminatory manner. It should be
noted that the Secretary could withhold all shared revenues
going to a jurisdiction should there be any doubt about
which portion of the entitlement was being used in violation
of the Act. This sanction could also be applied where recipients purposely redirect revenue sharing funds in relation to
their own revenues in order to avoid compliance.
The Treasury Department has been attempting to strengthen
the Office of Revenue Sharing's compliance effort, especially
in the area of non-discrimination. In addition to relying
upon internal resources, we have developed agreements with
State audit and human rights agencies and other Federal agencies to achieve as much benefit as possible from their
existing compliance programs. The Administration feels that
such an approach is reasonable given the broad jurisdictional
impact of revenue sharing as well as the underlying philosophy
of the program.
We are currently involved in making a careful assessment
of the compliance operations in order to determine how to
further improve them. As to both matters we have carefully
considered evaluations made from both within and outside of
the Federal government.
It is important that the Secretary of the Treasury have
the capacity of flexibly applying the other few restrictions
and requirements that are critical to the revenue sharing
program. Such an approach allows adjustment to varied local
situations. We can apply requirements more effectively and
reduce unnecessary burdens. To this end, H.R. 6558 grants
the Secretary of the Treasury increased discretion to prescribe
the form and content of the reports to be made out by recipients before and after the use of shared revenues. This
modification should help to provide information that is more
useful to local citizens and to the Federal Government. It
should also eliminate costly and unnecessary requirements on
small governments. It is~not intended to lessen the accountability of jurisdictions receiving substantial entitlements.

fa> - 10 Similarly, our proposed legislation permits the Secretary to authorize methods other than publication in a local
newspaper to inform citizens of the proposed use of GRS
funds. The Secretary would follow such a course of action
where newspaper publication costs are excessive in relation
to the amount of shared revenues received by a local government, or where better methods for informing the public are
available.
The Administration would also like to improve the
flexibility needed to account for differing local situations
in the area of public participation. The President is
proposing that a recipient government be required to assure
the Secretary of the Treasury that it will provide its
citizens with notice and the opportunity to participate
in revenue sharing spending decisions. The opportunity
for citizen involvement would be provided through a hearing
or by other appropriate means prescribed in regulations
issued by the Secretary.
Since most State and local governments already have
such participatory mechanisms in place, this new requirement
will not place new burdens on the great bulk of recipients.
It has been designed to accommodate the variety of practices
which have evolved around the nation because of jurisdictional
size, geography, and political history.
The expenditure of revenue sharing funds in a fashion which
is honest, efficient, and in line with the needs and desires of
citizens depends upon the vitality of democracy in our States,
counties, cities, and towns. Consequently, we felt that the
proposal of an additional requirement for citizen participation
was wholly in keeping with the revenue sharing approach to
Federal assistance. Congress in 1972 decided to share Federal
tax money with general purpose State and local governments
because it had confidence that their representative, processes
would assure responsible use of these funds.
We do not think
that this confidence was misplaced.
The Administration appreciates the courtesy extended to
it by Chairman Fountain, and Congressmen Horton and Wydler
in introducing this General Revenue Sharing renewal legislation

- 11 -

3^^

at our request. I appreciate the opportunity given me
today to set forth the reasoning behind the legislation
before you. We think that HR 6558 is a balanced, responsible proposal which, while seeking the renewal of a basically
successful program in its broad general outlines, does not
overlook opportunities to improve its effectiveness. We
urge its early and favorable consideration.

Contact Point: L.F. Potts
x-2951
September 25, 1975

FOR IMMEDIATE RELEASE

TREASURY ANNOUNCES TENTATIVE DISCONTINUANCE
OF ANTIDUMPING INVESTIGATION ON
WATER CIRCULATING PUMPS, WET MOTOR TYPE,
SUITABLE FOR USE IN RESIDENTIAL AND
COMMERCIAL HYDRONIC HEATING SYSTEMS,
FROM SWEDEN
Assistant Secretary of the Treasury David R. Macdonald
announced today the tentative discontinuance of an antidumping investigation on water circulating pumps, wet motor
type, suitable for use in residential and commercial hydronic
heating systems, from Sweden. Notice of this decision will
appear in the Federal Register of September 26, 1975.
The investigation revealed that the manufacture of this
merchandise in Sweden by the sole exporter, Sundstrand
Hydraulic A/B, ceased in mid-1974, and that exports of this
merchandise from Sweden were terminated in January 1975.
Formal assurances were received from Sundstrand International Corporation S.A., a corporation of Switzerland
and the parent company of Sundstrand Hydraulic A/B, and from
Sundstrand Corporation of Rockford, Illinois. These assurances state that sales to the United States of water
circulating pumps manufactured in Sweden have terminated
and will not be resumed.
Imports of the subject merchandise from Sweden during
calendar year 1974 were valued at roughly $1,325,000.

oOo

J99$/
FOR IMMEDIATE RELEASE

September 25. 1975

MEMORANDUM TO THE PRESS
Attached for immediate release is a letter
Secretary of the Treasury William E. Simon sent
today to the President of the Senate and the
Speaker of the House transmitting proposed legislation on access to income tax returns.
Also enclosed is the text of the proposed
law and a technical explanation of the legislation.

Attachment

WS-100

THE SECRETARY OF THE TREASURY
WASHINGTON

SEP 2 41975
Dear Mr. Speaker:
There is forwarded herewith a draft bill "To amend the Internal
Revenue Code of 1954 to restrict the authority for inspection of returns
and the disclosure ox information with'respect thereto, and for other
purposes. " It would be appreciated if you would lay the proposed legislation before the House of Representatives. This proposal was developed
in conjunction with Administration initiatives in the privacy area. The
proposal is also being sent to the President of the Senate.
Inspection and disclosure of tax returns and tax return information
is presently governed by section 6103 of the Internal Revenue Code and
by Executive Orders and Treasury Regulations adopted pursuant to the
authority provided in that section. This statutory and regulatory apparatus has generally worked very well. The number of complaints or
allegations of abuse has been very small, particularly when one considers the immense volume of returns and associated information processed each year by the Internal Revenue Service.
Nevertheless, we believe it is important that the American taxpayer know who will have access to information reported on his tax
returns and under what circumstances the law makes that information
available to others. Therefore, we have completely reexamined the
existing rules witji a view to ensuring the maximum confidentiality
of tax returns and ^ x return information consistent with effective
tax administration and legitimate needs of other federal agencies to
obtain tax information for law enforcement and statistical purposes
and of states for purposes of their own tax administration.
The proposed legislation would establish a general rule that all
tax returns and related information are confidential and m a y not be
disclosed except as authorized by this legislation. The principal
instances in which tax return information would be made available
to agencies or persons outside the Internal Revenue Service are
described below.
Specific statutory authority for access to tax returns by the tax
writing committees of Congress would be continued as under present
law. Other committees would be permitted access to tax returns only
by Congressional resolution substantially in accordance with present
procedure. The practice under which a number of committees have
obtained tax returns pursuant to Executive Orders would be terminated,
and control of Congressional access to tax returns would be placed m
the Congress itself.

5^
- 2-

The President and specified higher echelon employees of the White
House would have access to tax returns and tax return information only
upon a request signed by the President personally. This would incorporate into the statutory limitations those restrictions previously imposed
by the President in Executive Order 11805 of September 20, 1974.
Federal ?,gencis3 seeking access to tax returns or other information concerning a taxpayer from the IRS for law enforcement purposes
would have to satisfy n e w statutory criteria which would be both m o r e
specific and m o r e restrictive than under present law. The items of
information that could be supplied pursuant to a request for a tax check
would be strictly limited and would be specified in the statute.
The Bureaus of the Census and Economic Analysis in the Department of C o m m e r c e would continue to have full access to tax return
data for the purpose of its use of information on tax returns for statistical purposes. The Federal Trade Commission would have access to
tax return data to the extent necessary for the preparation of the
Quarterly Financial Report. Other agencies, as well as the states
and any other person, could contract for special statistical studies to
be undertaken by the Internal Revenue Service but would, of course,
have to bear the cost of such studies. In recognition that facility or
other limitations might m a k e it impractical for Internal Revenue Service
personnel to conduct all such special studies that might be requested,
provision is m a d e for the Service to contract with other federal agencies
or persons (which might include the requesting party) to carry out such
studies. Where such contracts are executed, the outside contractor
would be fully subject to all of the safeguards, including the criminal
penalties for unlawful disclosure, that are provided to ensure m a x i m u m
protection of the confidentiality of tax information.
In general, the proposed statutory provisions would be more
detailed than under present law, under which most restrictions are
contained in regulations or Executive Orders. This statute would
narrowly restrict the discretionary authority of the Internal Revenue
Service to disclose tax information. The Service would, however,
be authorized to withhold disclosure on a finding that the administration of the Federal tax laws would be seriously impaired by such disclosure.
The draft legislation also contains provisions respecting access
to tax returns by states and "oy other persons, procedures that must
be followed in requesting tax information and in handling tax information, and record keeping requirements respecting requests for tax
information and the disposition of such requests.

« t f

The draft legislation would provide for the first time a comprehensive set of statutory rules for the use of tax information and would
supersede both the existing tax law provisions respecting such use
and, to the extent applicable to tax returns, the Privacy Act of 1974.
The provisions of the bill are discussed more completely and
ia greater detail in the enclosed explanation.
The Office of Management and Budget has advised that, from the
standpoint of the Administration's program, there is no objection to
the presentation of this proposal for the consideration of the Congress,
Sincerely ^

William E. Sirndty
The Honorable '
Carl Albert
Speaker of the
House of Representatives
Washington, D. C. 20515
Enclosure

9/24/75
PROPOSAL TO AMEND SECTION 6103 AND
RELATED CODE SECTIONS HAVING TO DO
WITH DISCLOSURES OF FEDERAL TAX
RETURNS AND RETURN INFORMATION

SM

As a general rule, section 6103(a> of the Code
presently makes tax returns a matter of: public record
but authorizes inspection only upon order of the President and under regulations based upon his Executive
orders. Section 6103(b) specifically authorizes disclosure of income tax returns to State and local tax
authorities upon request by a State governor for purposes
of State or local tax administration. Section 6103(c)
authorizes inspection of corporate income tax returns by
shareholders owning 1 percent or more of the corporate
taxpayer's stock. Section 6103(d) authorizes inspection
of returns or return information by the tax writing committees of Congress and by any select committee authorized
to inspect returns or return information by Congressional
resolution. Section 6103(f) compels the Secretary or his
delegate to tell any inquirer whether or not a person has
filed an income tax return for a particular year. Finally,
section 6103(g) authorizes disclosure of returns and return
information to the Department of Labor, the Pension Benefit
Guaranty Corporation, and the Department of Health, Education, and Welfare for purposes of administering the
Employee Retirement Income Security Act and an implementing
provision of the Social Security Act.
Section 7213(a) imposes criminal penalties on any
Federal officer or employee who makes an unlawful disclosure
of income tax return information and on any person who unlawfully prints or publishes income tax return information.
Section 7213(b) imposes corresponding penalties on officers,
employees, or agents of a State or political subdivision of
a State who unlawfully disclose such information.
The maximum effort has been made under the existing
statute and regulations to assure the confidentiality of
tax returns and tax return information consistent with
effective Federal tax administration and the legitimate
needs of other Federal agencies for tax information for law
enforcement and statistical purposes and of the States for

&9
purposes of their own tax administration. Nevertheless,
the existing statutory and regulatory apparatus does not
adequately inform the American taxpayer as to who will
have access to his tax return and tax return information
and for what purposes. Accordingly, the proposed revision
of section 6103 reflects a complete reexamination of the
present rules and is based on the fundamental principle
that tax returns and return information should be held
confidential and private except as otherwise clearly
provided by statute.
The proposed revision specifically recognizes the
applicability of the Privacy Act of 1974 to disclosures
of tax returns and tax return information of individuals.
Privacy Act standards applicable to an individual's right
to inspect his own tax return information are incorporated
by cross reference, and the monetary penalty for unauthorized
disclosures imposed by section 7213 would be raised to correspond to those imposed by the Privacy Act. The proposed
revision would, however, modify the Privacy Act's recordkeeping requirements as applied to certain described disclosures of tax information and would specifically exclude
the application of the Privacy Act's record-correction
provisions and judicial remedies to any administrative or
judicial determination of Federal tax liability provided
for by subtitle F of the Internal Revenue Code.
Set out below is a description of existing law and
practice under sections 6103 and 7213 in major areas and
an explanation of how this proposal would affect the present
situation.
1. Definition of Tax Return and Return Information
Existing regulations define "return" to include information returns, schedules, lists, and other written
statements which are designed to be a supplement to a return or a part of a return. The term is also defined to
include "[o]ther records, reports, information received

9&

- 3orally or in writing, factual data, documents, papers,
abstracts, memoranda, or other evidence . . . relating
to [a return]."
Because disclosure standards propenrly applicable
to a return itself may, in varying circuimstances, be
different from those applicable to Inteirnal Revenue
Service files relating to a return and tto information in
Service files relating to a taxpayer's ipast, present, or
future tax liability, the legislative ptroposal makes a
definitional distinction between a tax ireturn and tax
return information.

The proposed definition of "return!" is not significantly different from the basic definition of "return" in
existing regulations. The proposed new definition of
"return information," however, is considerably more specific
and detailed than the existing supplemental definition of
"return" quoted above from existing regulations. The proposed new definition of "return information" is intended
to cover information of any kind filed with, or compiled
by, the Service which relates to a taxp&ayer's past, present,
or future tax liability. The new definition would specifically cover private letter rulings issured pursuant to a
request made before a date to be inserted in the proposal
and all requests for technical adviceraiadeby Service personnel to the National Office, regardless of when made.
Future private ruling letters generally would be confidential
only to the extent permitted by the Freedom of Information
Act or other Federal legislation. Also protected is tax
information furnished to the Secretary or his delegate in
connection with tax administration and accepted by him as
confidential pursuant to regulations.
2. Federal Tax Law Administration
Under existing regulations, tax
information are freely available
of the Treasury Department whose
such access. By the same token,

returns and return
to officers and employees
official duties require
tax returns and return

&l

-4-

information are open to Justice Department attorneys and
U.S. attorneys where necessary in the performance of
official duties relating to Federal tax administration.
While the existing rule applicable to Treasury Department officers and employees has been retained, the rule
applicable to Justice Department attorneys and U.S. attorneys has been clarified. The use to which tax returns and
return information are appropriately put by these attorneys
in a tax context is in preparation for tax litigation or in
an investigation pointing toward tax litigation. As will
be described below, the proposal restricts actual disclosure
in an administrative or judicial tax proceeding of a third
party's return or return information as to a third party.
Accordingly--and logically--access by Justice Department
attorneys and U.S. attorneys to returns and return information in preparation for tax litigation should be limited
in a similar fashion. These attorneys would have access,
of course, to returns of, and return information regarding,
a taxpayer who is or may be a party to litigation. In the
case of a third party, returns and return information would
be made available only if the third party consents or if
such returns and return information have or may have a
bearing on the outcome of the possible or actual litigation
for particular reasons specified by the statute.
3. Federal Non-Tax Law Administration
By regulation based upon
department or agency may,
approval of the Secretary
and return information in
before that department or

an Executive order, any
upon request and subject
or his delegate, inspect
connection with a matter
agency.

Federal
to the
tax returns
officially

This access to tax returns and return information has
resulted in extensive disclosure of tax returns and return
information for use in a variety of Federal activities.
While access to tax returns is undoubtedly useful, and perhaps essential, to the proper functioning of some Federal

$£3>
-5
departments and agencies, the volume of data and other
information obtainable has reached such proportions as
to prompt legitimate concern,over the ability to maintain
the appropriate degree of confidentiality.
Because of the obviously demonstrabOLe need of the
Bureau of the Census and the Bureau of Economic Analysis
of the Department of Commerce for returns and return information for research and for statistical purposes, the
legislative proposal would make returns and return information available for such purposes upon request by the
Secretary of Commerce. No statistical study could be
made public, however, if it in any way identified a
particular taxpayer or could be so used. Likewise, information taken from corporate income tax returns would
be made available to the Federal Trade Commission for
purposes of its Quarterly Financial Reporting Program.
Like Commerce, however, no information so furnished to
the FTC could be made public in a form wrhich identified
a particular taxpayer. Because of the close relationship
between the collection of Social Security taxes and administration of the Social Security Act by the Department of
Health, Education, and Welfare, the legislative proposal
would continue existing HEW access to returns and return
information for this purpose; and access would also be
extended to the Labor Department and the Pension Benefit
Guaranty Corporation for purposes of administering the
Employee Retirement Income Security Act.
In the case of other Federal departments and agencies,
access to returns and return information in something other
- than statistical form would be limited to returns and return
information which, for particular reasons specified by
statute, have or may have a direct bearing upon the outcome
of an administrative or judicial proceeding (or investigation
leading to such a proceeding) in a matter relating to the
enforcement of a Federal statute. Further, such access would
be specifically conditioned on a finding by the Secretary
or his delegate that the requested information could not

5%

"6-

reasonably be obtained from another source. Because the
actual use of returns and return information in such a
proceeding is restricted as described below, the initial
access by the Federal department or agency for purposes
of preparing for a proceeding is restricted in a similar
fashion. This pattern thus corresponds generally to that
proposed for disclosure to Justice Department attorneys
and U.S. attorneys in tax matters which has just been
described. It is further provided that the Secretary or
his delegate may withhold requested returns and return
information to the extent that he finds that disclosure
would seriously impair Federal tax law administration.
In the event that such a determination were made or if
the Secretary or his delegate determined that the requested
information could reasonably be obtained from another source,
the proposed statute calls for a consultation on the matter
between the head of the requesting Federal department or
agency and the Secretary of the Treasury. If, after such
consultation, the issue of disclosure has not been resolved,
a final determination would be made by the President or
his delegate.
Because a number of Federal departments and agencies,
as well as other persons, may need tax return information
in statistical form for various purposes, new section 6108
would authorize the Commissioner to provide statistical
studies upon request, provided such statistics did not
reveal, directly or indirectly, any taxpayer's identity.
Further, a proposed amendment to section 7513 would authorize the Commissioner to contract with any Federal agency,
including the requesting agency, to prepare the statistical
study if the Internal Revenue Service were unable to do the
work itself.
4. State and Local Tax Law Administration
Under section 6103(b) of existing law, income tax
returns and income tax return information are, upon the
written request of a State governor, open to inspection

1by any official, body, or commission lawfully charged with
the administration of State tax laws for the purpose of
such administration. Further, section 6103(b) authorizes
the governor to direct that tax returns and return information be furnished to local taxing authorities for use
in administering local tax laws.
Tax returns and return information which are supplied
to tax officials at, say, a county or city level may not
be invariably subject to appropriate safeguards on confidentiality which the Service has the right to expect and
a duty to protect. Likewise, political considerations may
produce unwarranted interest in tax information at even
higher levels for nontax purposes. The legislative proposal
would limit access to tax returns and return information to
a State body, agency, or commission lawfully charged with
State tax law administration and only for purposes of such
administration. It is further provided that returns and
return information would be available to State tax officials
only to the extent that the Secretary or his delegate does
not determine that disclosure would seriously impair Federal
tax law administration.
5. Judicial and Administrative Tax Proceedings
. Under existing regulations, tax returns and return
information are available upon request by attorneys of the
Justice Department and U.S. attorneys for use in any Federal
or State tax litigation if the Federal Government is interested in the result. This broad right of access can result
in seriously breaching the confidentiality of tax returns
- and return information relating to taxpayers who are not
parties to the litigation. This can cotoe about through
the introduction in evidence of third party returns and
return information where such returns or information may
be considered relevant in some way to the outcome of the
litigation.
For this reason, the legislative proposal imposes
strict conditions upon the use of third party returns and

- 82tum information in Federal tax litigation where the
tiird party does not consent to such use. Essentially,
tie proposal would restrict the use of third party returns
tid return information to those instances where the return
r return information has or may have a direct bearing on
tie outcome of the litigation for reasons specified by the
roposal, and then only to the extent of such bearing.
dditionally, third party returns and return information
a) could be used to impeach the testimony of the third
arty if he were a witness in the proceeding and (b) could
B disclosed to the extent required by the Constitution or,
a a criminal proceeding, 18 U.S.C. 3500 or Rule 16 of the
ederal Rules of Criminal Procedure. Even if a third
arty's return and return information could otherwise be
isclosed by application of these rules, other than those
pplicable to disclosures pursuant to court order or reaired by the Constitution, they could not be used if the
ecretary or his delegate determined that disclosure would
eriously impair Federal tax law administration. Once
gain, any such determination would be subject to the proedure described above calling for consultation between
he Attorney General and the Secretary of the Treasury
ith a final determination to be made, if necessary, by
tie President or his delegate.
It should be noted that the rules applicable to dislosures in actual tax litigation are more strict than
tiose applicable to disclosures to Justice Department
ttorneys and U.S. attorneys for purposes of preparing
Dr such litigation. The proposal would impose standards
f direct bearing on the use of third party tax information
i tax litigation whereas this requirement of direct bearing
3 not imposed on initial access for purposes of an investiation leading to, or preparation for, tax litigation. The
*ason for this difference is that when the Justice Depart*nt represents the interests of the Internal Revenue
*rvice in tax litigation, it should not be unduly restricted
i developing its case and should properly have reasonable

- 9 in-house access to tax information which may be necessary
for this purpose. The legislative proposal thus draws a
distinction between this in-house access and actual introduction in evidence, and consequent publicity, of tax
information, particularly with respect to third parties
who are not directly involved in the litigation.
6. Judicial and Administrative Non-Tax Proceedings
Here again, present regulations effectively provide
that the Department of Justice may, upon request, use
third party returns and return information in non-tax
litigation where the Federal Government is interested
in the result.
The necessity for protecting any taxpayer's right
to privacy with respect to his tax affairs is even more
acute in this area than in that of tax litigation since
Federal tax administration is in no way involved in the
litigation. Accordingly, the proposal would limit the
use of any taxpayer's returns and return information in
non-tax judicial and administrative proceedings to a
Federal proceeding to which the United States is a party
and then only if the taxpayer himself is a party to the
proceeding or consents to the use or if the information
has or may have a direct bearing upon the outcome of the
proceeding because of a transactional relationship between
the taxpayer and a party to the proceeding. Disclosure
would in all events, however, be conditioned on a finding
by the Secretary or his delegate that the same information
could not reasonably be obtained from another source. As
in tax litigation, a return or return information could
- also be used in the litigation under certain circumstances
to impeach a witness and to the extent required by the
Constitution, 18 U.S.C. 3500, or Rule 16 of the Federal
Rules of Criminal Procedure. Once again, the returns and
return information could be withheld, siebject to the procedure outlined above, upon a finding by the Secretary or
his delegate that Federal tax law administration would be
seriously impaired.

VI

- 10 7.

Prospective Jurors and Possible Criminal Activities

Under existing regulations, attorneys of the Department
>f Justice cannot have access to tax returns for purposes
>f examining prospective jurors but are authorized to deterline from the Internal Revenue Service whether or not a
prospective juror has been under tax investigation. The
tatutory proposal would codify these limited regulatory
ules. Any broader access to tax information regarding
>rospective jurors would appear to go beyond the limits
>f basic taxpayer privacy.
In the interest of serving the basic ends of criminal
ustice, the proposal would direct the Secretary or his
lelegate to notify the Attorney General as to possible
r
iolations of Federal criminal laws which come to his
tttention as the result of his own access to return inforlation. The proposal would also give the Secretary or his
lelegate discretionary authority to so notify State or
ocal law enforcement agencies of a possible violation
>f State criminal laws.
8. Strike Force Participation
The proposal would specifically authorize disclosure
f certain return information by Treasury Department emloyees who participate jointly with another Federal agency
n an enforcement activity relating to Federal criminal
aws. This proposal is principally directed to Service
articipation with the Department of Justice in the Federal
rganized Crime Strike Force program. The statute would
nly permit disclosure by participating Service employees
o other Federal employees involved in the enforcement
rogram of return information received or developed from
ources other than the taxpayer himself and then only to
he extent required by the investigation.
9. Congressional Committees
Section 6103(d) authorizes unlimited disclosure of
eturns and return information to the three tax writing

- 11 -

5Jf

committees of Congress and to any select committee authorized by Congressional resolution to inspect returns
and return information. Returns and return information
may be furnished to any such committee sitting in executive
session. Numerous Congressional committees other than
those referred to in section 6103(d) have traditionally
sought and obtained returns and return information through
specific Executive orders.
The legislative proposal would tighten existing law
in some respects and broaden it in others. The three tax
writing committees of Congress would continue to have
access to any tax returns and return information upon
request, and this right would be specifically extended
to the Chief of Staff of the Joint Committee on Internal
Revenue Taxation. Any other Congressional committee's
access to tax returns and return information, however,
would have to be by way of a resolution of the appropriate
house of Congress. Further, returns and return information
furnished to any Congressional committee would have to be
furnished in closed executive session.
10. The President
The legislative proposal grants to the President
specific authority to see returns and return information
pursuant to his personal written request and grants to
him the further authority to name an employee or employees
of the White House Office to whom such returns and return
information are to be furnished. For this purpose, the
proposal defines an employee of the White House Office as
one who holds a Presidential commission and whose annual
rate of basic pay equals or exceeds that prescribed by
5 U.S.C. 5316. No such employee of the White House Office
to whom tax information is furnished at the President's
request would be permitted to disclose the information
to anyone other than the President without the President's
written direction. Any Presidential request would have to
identify the particular taxpayer whose return was to be
inspected, the kind of return involved, and the taxable

period covered by the return. These proposed statutory
restrictions upon White House access to returns and return
information correspond to those reflected in Executive
Order 11805 dated September 20, 1974.
11. Persons With a Material Interest
Section 6103(c) authorizes the inspection of a corporation's income tax returns by any holder of 17. or more
of the corporation's stock. In an attempt to head off
possible mischief, the regulations deny this right to a
shareholder who acquired his stock interest for that purpose. Income, estate, gift, unemployment, and certain
excise tax returns are presently open to the filing taxpayer,
the beneficiary of a trust, a trustee in bankruptcy, and a
member of a partnership. Income tax returns of a deceased
taxpayer are also open to the representative of his estate
and, along with estate and gift tax retorns, to certain
other persons upon a satisfactory showing of a material
interest.
The proposal deletes the "17« stockholder" rule of
section 6103(c) because the rule encourages inherently
improper and severely damaging disclosures and because
SEC rules now require much of the information contained
in many corporate returns to be made public. The regulatory rules regarding disclosure to persons with a
material interest have been largely retained but tightened
to prohibit disclosure of tax return information where
disclosure would seriously impair Federal tax law
administration.
Section 6103(c)(6) of the Administration taxpayer
privacy proposal introduced in the 93rd Congress as S.
4116 and H.R. 17285 would have provided that a taxpayer's
own tax return information would be open to him unless
the Secretary or his delegate determined that such disclosure would seriously impair the administration of

5V*
- 13 Federal tax laws. Because this "impairment" standard
may not be compatible with Privacy Act standards, the
present legislative proposal would provide a second
standard for disclosure which could override the "impairment" test in an appropriate case. This second standard
would compel disclosure of return information, notwithstanding, impairment of Federal tax law administration,
where required by 5 USC 552a(d) or any other provision
of Federal law.
12. Contractors
Under the authority of section 7513, the Secretary
or his delegate may contract for the photographic reproduction of tax returns and return information, and disclosure is, of course, authorized for this purpose. At
the same time, disclosure must necessarily be made to
certain other contractors and their employees who furnish
property and services in connection with the general
administration of the tax laws by the Treasury Department
and the Internal Revenue Service.
The legislative proposal deals with this problem
under current law by specifically authorizing the disclosure of tax returns and return inforiration to any
person to the extent necessary in, or to facilitate,
the contractual procurement of property or services by
the Treasury Department or the Service for tax administration purposes. At the same time, however, the proposal
would amend section 7213 to extend to these persons the
criminal penalties provided for unauthorized disclosure.
13. Misstatements of Fact
Existing law does not provide clear authority permitting the Secretary or his delegate to disclose return
information with respect to a particular taxpayer in order
to correct a misstatement of fact published or disclosed
with respect to that taxpayer's return or his dealing with
the Service. The proposal would permit the Secretary or

$w

- 14 -

his delegate to disclose tax return information, or any
other information, with respect to that taxpayer under
these circumstances to the extent necessary to correct
his public misstatement in the interests of Federal tax
administration.
14. Tax Checks
Although there is no specific authorizing provision
under existing law, tax check information on prospective
appointees to, and employees of, the Federal Government
is presently being furnished upon request. Occasionally,
such information is also furnished to a State Government
in connection with a prospective appointee to State office.
The legislative proposal restricts tax checks to
prospective appointees to the Executive or Judicial branch
of the Federal Government, and then only upon written request of the White House, a cabinet officer, or the head
of a Federal establishment. The information to be disclosed
in a requested tax check is then limited to whether the
individual has filed income tax returns for the last 3
years, has failed in the current year or preceding 3 years
to pay any tax within 10 days after notice and demand or
has been assessed a negligence penalty during this period,
has been under any criminal tax investigation and the result of any such investigation, and has been assessed a
civil penalty for fraud or negligence.
15. Taxes Imposed by Subtitle E and Chapter 35
Existing law affords no specific statutory protection
to returns and return information relating to alcohol,
tobacco, and firearms taxes imposed by subtitle E of the
Internal Revenue Code. In connection with its own law
enforcement programs, the Department of Justice has
traditionally had access to such returns and return information. Accordingly, the proposal would grant specific

5?&
- 15 statutory access to these returns and return information
by a Federal officer or employee whose official duties
require such access, provided that the conditions, if any,
imposed upon such access by the Privacy /Act have first
been met.
Pub. Law 93-499 (93rd Cong., 2d Sess.) added section
4424 to the Internal Revenue Code which would prohibit,
among other things, the disclosure of returns and return
information relating to wagering taxes imposed by chapter
35 except for purposes of enforcing title 26 or to Congressional committees as provided by section 6103(d) of
existing law. The proposal incorporates the principle of
Pub. Law 93-499 but provides additionally for disclosure
to the taxpayer himself or his designee, to certain others
who can demonstrate a material interest which would be
affected by such information, and to the President or
certain employees of the White House Office under the
conditions outlined in Paragraph 10 above. To the extent
that the proposal governs the disclosure of wagering tax
information, section 4424 would be repealed.
16. Waivers of Confidentiality
No authority presently exists which would permit the
Secretary or his delegate to disclose returns or return
information with respect to a taxpayer to someone to whom
the taxpayer himself wanted his return or return information
disclosed. The legislative proposal would permit disclosure
in the discretion of the Secretary or his delegate if requested by the taxpayer involved but then only to the extent
- that such disclosure could have otherwise been made directly
to the taxpayer himself.
17. Section 6103(f)
The required disclosure to any person of information
as to whether another taxpayer has filed an income tax
return for a particular year is plainly contrary to the

r<&

- 16 -

most basic principle of taxpayer privacy/. For this reason,
the proposal would delete present section 6103(f) of the
Code.
18. Records of Inspection and Disclosure
Pursuant to the authority of section 6103(d) of existing
law, the Internal Revenue Service furnishes to the Joint
Committee on Internal Revenue Taxation a semiannual report
of tax returns and tax return information disclosed as provided by section 6103 and the regulations thereunder. The
legislative proposal would codify this existing practice
and would specifically permit inspection of the Service's
records of disclosures by individual taxpayers to the extent
required by the Privacy Act. The proposal would, however,
effectively modify the Privacy Act by specifically excluding
from record-keeping requirements under either section 6103
or the Privacy Act disclosures made under proposed section
6103(f), (h)(1), (h)(2), (h)(3), (h)(4), (h)(5), (i)(l), or
(j).
Proposed section 6103(f)(1) deals with disclosures
within the Treasury Department and should fit the specific
exception of 5 USC 552a(c)(l) as an intra-agency disclosure
under 5 USC 552a(b)(l). When disclosures are made to the
Tax Division of the Department of Justice under proposed
section 6103(f)(2), the Tax Division is preparing to represent the interests of the Internal Revenue Service in
litigation and is acting as an arm of the Service. When
so acting as the Service's attorney, the philosophy of the
Privacy Act should permit an exception for keeping records
of disclosures made essentially by a client to its attorney.
Disclosures under most of the paragraphs of proposed
section 6103(h) would either be impossible to keep records
of (i.e., section 6103(h)(1)) or are in the nature of
public disclosures (i.e. , section 6103(h)(2), (3), (4).
and (5)). The same public disclosure idea is present in
proposed section 6103(i)(l), and there is some doubt that
taxpayer identity information under section 6103(j) is a

- 17 -

£M

record which the Privacy Act was ever intended to cover.
This is based on Congressman Moorhead's floor statement
that 5 USC 552a(n) "does not ban the release of such
[name-and-address] lists where either sale or rental is
not involved."
19. Judicial Review
The proposal provides that the exclusive remedy for
an alleged violation of section 6103 shall be a proceeding
under section 7213 or, where applicable, 5 USC 552a(g) or
(i), as enacted by the Privacy Act. Judicial review of
any determination permitted or provided by statute to
disclose or not to disclose a return or return information
is thus limited to a proceeding under section 7213 or 5
USC 552a(g) or (i).
20. Penalties for Unauthorized Disclosure
Section 7213 makes it unlawful for any Federal or
State official or employee to make a disclosure of income
tax return information which the Code do>es not authorize
and makes it unlawful for any person to print or publish
any such information except as authorize-d by the Code.
The legislative proposal expands th>e scope of section
7213 in four significant respects. First, section 7213
would apply to unauthorized disclosure of any tax returns
or return information. Second, the criminal sanctions are
extended to former officials or employees of the Federal
or a State Government. Third, the criminal sanctions are
extended to private contractors and their officers and
employees (or former officers and employees) who make unauthorized disclosures of returns and return information
to which they have been given statutory access. Fourth,
the maximum monetary penalty for an unauthorized disclosure
imposed by section 7213 of existing law would be increased
to $5,000 from $1,000 to correspond to the monetary penalty
imposed upon an unauthorized disclosure of records under
the Privacy Act.

^vr

18

- -

21. Possible Use of Judicial Procedures of Privacy
Act to Determine Issues of Federal Tax Liability
Subtitle F of the Internal Revenue Code provides
comprehensive rules for the administrative and judicial
determination of Federal tax liability. These rules provide the taxpayer a choice of three Federal tribunals,"
i.e.t a Federal district court, the Court of Claims, or
the Tax Court, in which to litigate questions of his Federal
tax liability. Further, the taxpayer can invoke elaborate
rules for attempted resolution of a tax dispute within the
Internal Revenue Service, involving administrative appeals
at several levels.
The Privacy Act authorizes a judicial remedy to compel
the requested correction of an individual's "record." See
5 USC 552a(d) and (g) (1) (A). It is believed that it was
clearly not the intention of the draftsmen of the Act to
thereby provide a new route for administrative and judicial
resolution of Federal tax disputes. Nevertheless, to avoid
any possibility of confusion or controversy regarding the
Act's availability in resolving such disputes, the legislative proposal would add to section 7852 of the Code a
new subsection (e), providing that the record-correction
machinery of the Privacy Act could not be applied to the
determination of any matter to which the provisions of
subtitle F apply.

9/24/75

A BILL
TO amend the Internal Revenue Code of 1954 to restrict
the authority for inspection of returns and the
disclosure of information with respect thereto,
and for other purposes.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. AMENDMENT OF 1954 CODE.
Whenever in this Act an amendment is expressed in terms of
an amendment to a section or other provision, the reference is to
section or other provision of the Internal Revenue Code of 1954.
SEC. 2. CONFIDENTIALITY AND DISCLOSURE OF RETUR S AND
R E T U R N INFORMATION.
Section 6103 (relating to publicity of returns and disclosure of

information as to persons lliing income tax returns) is amended to
read as follows:
"SEC. 6103. CONFIDENTIALITY AND DISCLOSURE OF RETURNS AND
R E T U R N INFORMATION.
"(a) General Rule. -"(1) Confidentiality and disclosure. --Returns and return in-

formation shall be confidential and no person described in section
7213 (a) shall permit inspection of or disclose returns or return
information, nor shall a court, administrative body, or other person order such inspection or disclosure, except to such persons
and for such purposes as are authorized by this title.

-2-

"(2) Definitions. --For purposes of this section-n

(A) Return.--The term 'return' means any

tax or information return or declaration of estimated
tax required by, or provided for or permitted under,
the provisions of this title filed by, on behalf of, or
with respect to any person with the Secretary or his
delegate, and any amendment or supplement thereto
or claim for refund, mcluding supporting schedules,
attachments, or lists which are designed to be supplemental to, or become part of, the return so filed.
"(B) Return information. --The term 'return information' means-"(i) any data including a taxpayer's identity,
the nature, source, or amount of his income, payments, receipts, deductions, exemptions, credits,
assets, liabilities, net worth, tax liability, tax withheld, deficiencies, overassessments, or tax payments, whether the taxpayer's return was, is being,
or will be examined or subject to other investigation
or processing, or any particular of any data, in whatever form (whether as a report, investigative file,
memorandum or other document, including a registration statement described in section 6057) or manner received by, recorded by, prepared by, furnished

to, or collected by the Secretary or his delegate with
respect to a return as described in subparagraph (A)
or with respect to the existence, or possible existence,
o^ liability (or the amount thereof) of any person under
this title for any tax, penalty, interest, fine, forfeiture,
or other imposition, or offense, but, for purposes of
clause (i), not including any such data (or particular
thereof) included in a document (or request or correspondence for or with respect thereto) described in
clause (ii) (v/ithout regard to the date limitation therein)
or (iii);
"(ii) any letter, advice, or oilier document
issued by the Secretary or his delegate pursuant io a
rccuech: made therefor on or before ,
by, or on behalf of, any person other than an officer or
employee of .he Department of the Treasury acting in
his official ccpaciiy, and any such request., or any
correspondence for or with respect to such document
or any portion thereof, which is intended to b„- used to
determine or affect the application of any rule contained in this title, related law. or trx treatv to the
facts z:id circumstance!; of a particular ir an sac lion,
arranger.:•• nt, or return tiled or to be filed b\ any
person to v bom such document if-, furnished;

-4-

"(iii) any memorandum, advice, or other
document issued by the Secretary or his delegate
pursuant to a request by, or on behalf of, any
officer or employee of the Department of the
Treasury acting in his official capacity, and any
such request, or any correspondence for or with
respect to such document or any portion thereof,
which is intended to be used by him to determine
or affect the application of any rule contained in
this title, related law, or tax treaty to the facts
and circumstances of a particular transaction,
arrangement, or return filed or to be filed by any
person to whom such document relates or may
relate; and
"(iv) any other data of the type described
in clause (i) which is furnished to the Secretary or
his delegate in connection with tax administration
and accepted as confidential pursuant to regulations
prescribed by the Secretary or his delegate,
whether or not such data (or particular thereof) described
in clause (i) or such document (or request or correspondence

for or with respect thereto) described in clause (ii) or (iii)
may be in any manner inspected or disclosed under the provisions of section 6104 or any other provision of this title.

- 5-

"(C) Tax administration.--The term 'tax administration ' - (i) means the administration, management, conduct,
direction, and supervision of the execution and application
of the internal revenue laws or related statutes (or equivalent laws, and statutes of a State) and tax conventions to
which the United Stales is a party and the development, and
formulation of Federal tax policy relating to existing or
proposed internal revenue laws, related statutes, and tax
treaties, and
(ii) includes assessment, collection, enforcement,
litigation, publication, and statistical gathering
functions under such laws, statutes, or conventions.
"(D) State. --The term 'State' means the 50 States,
the District, of Columbia, the Commonwealth of Puerto
Rico, possessions of the United States, and other places
under the sovereignty of the United States.
"(E) Taxpayer identity. --The term haxpayer identity'
mea?ts the name of a person v, it a respect to whom a ^eturti
is filed, his mailing address, and his taxpayer identifying
number (as described in section G109) or- a combination
thereof.
"(F) Inspection. --The terms 'inspected' and 'inspection' mean ihc visual examination of a return or return
information.

$£l

-6-

"(G) Disclosure. --The term 'disclosure' means the
making known to any person in any manner whatever a
return or return information.
"(H) Employee of the White House Office. --For purposes of this section, the term 'employee of the White
House Office' means only an employee of the White House
Office who is the holder of a Presidential commission and
whose annual rate of basic pay equals or exceeds the
annual rate of basic pay prescribed by section 5316 of
title 5, United States Code.
"(b) Disclosure to State Tax Officials. --Returns and return
information, except with respect to taxes imposed by chapter 35 or

53, shall be open to inspection by 'or disclosure to any State agency,
body, or commission lawfully charged with tax administration for
the purpose of, and only to the extent necessary in, the administration of a specific tax law of such State and shall be used only for
such tax administration. The inspection shall be permitted, or
the disclosure made, only upon written request of the head of such
agency, body, or commission, designating the representatives of
such agency, body, or commission to make the inspection or to
receive the return or return information on behalf of such agency,
body, or commission. However, such return information shall
not be disclosed to such agency, body, or commission to the extent
that the Secretary or his delegate determines that such disclosure
would seriously impair the administration of Federal tax laws.

- 7-

"(c) Disclosure to Persons Having Material Interest. -(1) The return of a person with respect to whom the
return is filed shall, upon written request, be open to inspection by or disclosure to-"(A) in the case of the return of an individual,
that individual;
"(B) in the case of an income tax return filed
jointly, either of the individuals with respect to
whom the return is filed;
"(C) in the case of the return of a partnership,
any person who was a member of such partnership
during any part of the period covered by the return;
"(D) in the case of the return of a corporation-"(i) any person designed by resolution of
its board of directors, or other similar governing body,
"(ii) any officer or employee of such
corporation upon written request signed by any
principal officer and attested by the secretary
or other officer,
"(iii) if the corporation was an electing
small business corporation under subchapter S
of chapter 1, any person who was a shareholder

5S2

during any part of the period covered by such
return during which an election was in effect,
or
"(iv) if the corporation has been dissolved, any person authorized by applicable
State law to act for the corporation or any person who the Secretary or his delegate finds to
have a material interest which will be affected
by information contained therein;
"(E) in the case of the return of an estate-"(i) the administrator, executor, or
trustee of such estate, and
"(ii) any heir at law, next of kin, or beneficiary under the will, of the decedent but only
if the Secretary or his delegate finds that such
heir at law, next of kin, or beneficiary has a
material interest which will be affected by information contained therein; and
"(F) In the case of the return of a trust-"(Tr*the trustee or trustees, jointly or
separately, and
"(ii) any beneficiary of such trust but
only if the Secretary or his delegate finds that
such beneficiary has a material interest which
will be affected by information contained therein.

- 9-

"(2) If an individual described in paragraph (1) is legally
incompetent, the applicable return shall be open to inspection
by or disclosure to the committee, trustee, or guardian of his
estate.
"(3) If an individual described in paragraph (1), other than
an individual described in subparagraph (E) (i) or (F) (i) of such
paragraph, has died, the applicable return may be inspected by
or disclosed to-"(A) the administrator, executor, or trustee of
his estate; and
"(B) any heir at law, next of kin, or beneficiary
under the will, of such decedent, or a donee of property, but only if the Secretary or his delegate finds
that such heir at law, next of kin, beneficiary, or
donee has a material interest which will be affected
by information contained therein.
"(4) If substantially all of the property of the person with
respect to whom the return is filed is in the hands of a trustee
in bankruptcy or receiver, such return or returns for prior
years of such person shall be open to inspection by or disclosure to such trustee or receiver, but only if the Secretary or
his delegate finds that such receiver or trustee has a material
interest which will be affected by information contained therein.

- 10 -

"(5) Any return to which this subsection applies shall also
be open to inspection by or disclosure to the attorney in fact,
duly authorized in writing, of any of the persons described in
paragraph (1), (2), (3), or (4) to inspect the return or receive
the information on his behalf, subject to the conditions provided for therein.
"(6) Return information with respect to any return shall
also be open to disclosure to any person authorized by this
subsection to inspect such return -"(A) to the extent that the Secretary or his
delegate does not determine that such disclosure
would seriously impair the administration of
Federal tax laws, or
"(B) notwithstanding a determination described in subparagraph (A), to the extent required by section 552a(d) of title 5, United States
Code, or any other provision of Federal law.
"(d) Disclosure to Committees of Congress. -"(1) Committee on Ways and Means, Committee on
Finance, and Joint Committee on Internal Revenue Taxation. --Upon written request from the Chairman of the
Committee on Ways and Means of the House of Representatives, the Chairman of the Committee on Finance of the
Senate, or the Chairman of the Joint Committee on Internal
Revenue Taxation, the Secretary or his delegate shall furnish

-n-

fS4>

such committee sitting in closed executive session with any
return or return information.
(2) Chief of Staff of Joint Committee on Internal Revenue
Taxation. --Upon written request from the Chief of Staff of the
Joint Committee on Internal Revenue Taxation, the Secretary
or his delegate shall furnish him with any return or return information. Such Chief of Staff shall have the right to submit
any relevant or useful information thus obtained to any committee described in paragraph (1) sitting in closed executive
session.
"(3) Other committees. --Upon written request from the
chairman of a committee of the Senate or House (other than a
committee specified in paragraph (1)) specially authorized to
inspect returns or return information by a resolution of the
Senate or House or, in the case of a joint committee (other
than the committee specified in paragraph (1)), by concurrent resolution, the Secretary or his delegate shall furnish
such committee sitting in closed executive session with any
return or return information which such resolution so
authorizes the crmimittee to inspect.
"(4) Agents of committees and submission of information to Senate or House. --Any committee described in paragraph (1) or (3) or the Chief of Staff of the Joint Committee on Internal Revenue Taxation shall have the right,

-12 -

537

acting directly, or by or through such examiners or agents
as the Chairman of such committee or such Chief of Staff may
designate or appoint in writing, to inspect returns and return
information at such time and in such manner as he may determine. Any relevant or useful information obtained by or
on behalf of such committee pursuant to the provisions of this
subsection may be submitted by the committee to the Senate
or the House, or to both the Senate and the House, as the case
may be. The Joint Committee on Internal Revenue Taxation
may also submit such information to any committee described
in paragraph (1) sitting in closed executive session.
"(e) Disclosure to President and Certain Other Persons. -Upon written request from the President signed by him personally,
the Secretary or his delegate shall furnish to him, or to such employee or employees of the White House Office as the President may
designate by name in such request, a return or return information
with respect to any tax imposed by this title upon a taxpayer named
in such request. Any such request shall state-(1) the name and address of the taxpayer whose return
is to be inspected,
"(2) the kind of return or returns which are to be inspected, and
(3) the taxable period or periods covered by such
return or returns.

No such employee of the White House Office shall disclose any return
or return information so furnished to him pursuant to the provisions
of this subsection to any person other than the President, without the
written direction of the President.
"(f) Disclosure to Certain Federal Officers and Employees for
Purposes of Tax Administration, etc. -"(1) Returns and return information shall, without written
request, be open to inspection by or disclosure to officers and
employees of the Department of the Treasury whose official
duties require such inspection or disclosure.
"(2) A return or return information with respect to any
tax imposed by this title upon a taxpayer shall, without written
request, be open to inspection by or disclosure to attorneys of
the Department of Justice (including United States attorneys)
personally and directly engaged in, and solely for their use in,
preparation for any proceeding (or investigation which may result in a proceeding) before a Federal grand jury or any
Federal or State court in a matter involving tax administration but only-"(A) if the taxpayer is or may be a party to
such proceeding;
"(B) if the taxpayer consents; or
"(C) if such return or return information has
or may have a bearng on the outcome of such proceeding because--

"(i) treatment of an item with respect to a
person who is or m a y be a party to such proceeding is or may be determined, in whole or in part,
by reference to the treatment of an item on such
return;
"(ii) such return or return information relates or may relate to an issue in the proceeding;
or
"(iii) the liability of the party under this
title for any tax, penalty, interest, fine, forfeiture, or other imposition, or offense, which
is or may be the subject of the proceeding is or
m a y be determined, in whole or in part, by
reference to such return or return information.
"(g) Disclosure to Federal Officers and Employees for Purposes
of Federal Law Administration (Other Than Tax Laws). -"(1) Upon request in writing by the Secretary of Commerce,
the Secretary or his delegate shall furnish any return or return
information reflected on such return to officers or employees of
the Bureau of the Census or the Bureau of Economic Analysis (or
successor bureaus or establishments thereof) of the Department
of Commerce for the structuring of censuses and the national economic accounts and related statistical activities to be conducted
or prepared by such bureau as authorized by^ law, provided that
no such officer or employee shall publish or otherwise disclose

<T3c
- 15 -

any return or return information except in statistical form which
cannot be associated with, or otherwise identify, directly or indirectly, a particular taxpayer.
"(2) Upon request in writing by the Chairman of the Federal
Trade Commission, the Secretary or his delegate shall furnish
return information reflected on any return of a corporation with
respect to the tax imposed by chapter 1 to officers or employees
of the Division of Financial Statistics of the Bureau of Economics
(or successor divisions, bureaus, or establishments thereof)
of such commission for the purpose of, but only to the extent
necessary in, administration by such division of economic surveys
of corporations as authorized by law, provided that no such officer
or employee shall publish or otherwise disclose any such return
information to any person (other than officers or employees of
the corporation with respect to which such return was filed)
except in statistical form which cannot be associated with, or
otherwise identify, a particular taxpayer.
"(3) A return or return information with respect to any
tax imposed by this title upon a taxpayer shall, upon request,
be open to officers or employees of a department, agency, or
other executive establishment of the Federal Government personally and directly engaged in, and solely for their use in,
preparation for any administrative or judicial proceeding (or
investigation which may result in such a proceeding) pertaining to the enforcement of a specifically designated Federal

-16 -

statute (not involving tax administration) to which the United
States (or a department, agency, or other executive establishment of the Federal Government) is or may be a party
before any Federal grand jury, court, department, agency,
or other executive establishment to the extent the Secretary
or his delegate determines that such information cannot
reasonably be obtained from any other source but only-"(A) if the taxpayer is or may be a party
to such proceeding;
"(B) if the taxpayer consents; or
"(C) if such return or return information
has or may have a direct bearing on the outcome
of such proceeding because-"(i) there was or may have been a transactional relationship between a person who is
or may be a party to the proceeding and the
taxpayer,
"(ii) such person is or may be a successor
in interest of the taxpayer, or
(iii) such return or return information
will or may corroborate or contradict other information obtained in such proceeding or investigation.
The inspection or disclosure shall be permitted only upon written
»

*

•

request setting forth the reasons for such request, the authority

- 17 -

r<^

under which the proceeding or investigation is being conducted, and
the particular subparagraph of this paragraph upon which the request is based and signed by the head of such department, agency,
or establishment or, in the case of the Department of Justice,
signed by the Attorney General, Deputy Attorney General, or an
Assistant Attorney General, or by the Director of the Federal
Bureau of Investigation. However, such return or return information shall not be disclosed to the extent that the Secretary or his
delegate determines that such disclosure would seriously impair the
administration of Federal tax laws. In the event that the Secretarj^
or his delegate makes such a determination or determines that the requested information can reasonably be obtained from another source,
the Secretary shall consult with the head of the requesting department, agency, or establishment, or, in the case of a request by
the Department of Justice, with the Attorney General. If, after
such consultation, the issue has not been resolved, a final determination shall be made by the President or his delegate.
"(4) An officer or employee of the Department of the
Treasury participating with officers or employees of another
department, agency, or other executive establishment of the
Federal Government in a joint investigation pertaining to the
enforcement of Federal criminal laws may, to the extent required by such investigation, disclose to such other officers

^3

. 18 -

or employees return information with respect to a tax imposed by this title upon a taxpayer other than return information furnished to the Secretary or his delegate by such
taxpayer.
"(h) Disclosure of Certain Returns and Return Information for
Tax Administration Purposes. -"(1) Disclosure by internal revenue officials and employees
for investigative purposes. --An internal revenue official or employee m a y , in connection with his official duties with respect to
a tax imposed by this title, disclose return information to the
extent that such disclosure is necessary in arriving at a correct
determination of tax, liability for tax, or the amount to be collected, or otherwise in the enforcement of any provision of
this title.
"(2) Disclosure of accepted offers-in-compromise. --Return
information shall be disclosed to m e m b e r s of the general public
to the extent necessary to permit inspection of any accepted
offer-in-compromise under section 7122, relative to the liability for a tax imposed by this title.
"(3) Disclosure of amount of outstanding lien. --If a notice
of lien has been filed pursuant to section 6323 (f) or corresponding provision of prior internal revenue laws, the amount of the
outstanding obligation secured b}' such lien is authorized to be

- 19 -

disclosed as a matter of public record and may be disclosed to
any person who furnishes satisfactory written evidence that he
has a right in the property subject to such lien or intends to obtain a right in such property.
"(4) Disclosure in judicial and administrative tax proceedings. --A return or return information with respect to any tax
imposed by this title upon a taxpayer may be disclosed in a
Federal or State judicial or administrative proceeding pertaining to tax administration before any Federal or State grand jury,
court, department, or executive establishment, but only-"(A) if the taxpayer is a party to such proceeding;
(B) if the taxpayer consents;
"(C) if such return or return information has or
m a y have a direct bearing on the outcome of such proceeding because-"(i) treatment of an item with respect to a
party to the proceeding is or may be determined,
in whole or in part, by reference to the treatment
of an item on such return,
"(ii) such return or return information relates or may relate to a transaction at issue in the
proceeding, or

- 20 -

r

"(iii) the liability of the party under this
title for any tax, penalty, interest, fine, forfeiture, or other imposition, or offense which
is the subject of the proceeding is or m a y be
determined by reference to such return or return
information;
"(D) to the extent necessary to impeach the testim o n y of the taxpayer if the taxpayer is a witness in the
proceeding;
"(E) to the extent required by order of a court
pursuant to section 3500 of title 18, United States Code,
or rule 16 of the Federal Rules of Criminal Procedure,
such court being authorized in the issuance of such order
to give due consideration to Congressional policy favoring
the confidentiality of returns and return information as
set forth in this title; or
"(F) to the extent required by the Constitution
of the United States.
However, such return or return information shall not be disclosed as provided in subparagraph (A), (B), (C), or (D) to the
extent that the Secretary or his delegate determines that such
disclosure would seriously impair the administration of
Federal tax laws. In the event that the Secretary or his delegate m a k e s such a determination with respect to disclosure

- 21 -

in a judicial proceeding to which the United States is a party,
the Secretary shall consult with the Attorney General. If,
after such consultation, the issue has not been resolved, a
final determination shall be made by the President or his
delegate.
(5) Disclosure of return information to correct misstatements of fact. --The Secretary or his delegate may, in
his discretion, disclose such return information or any other
information with respect to any specific taxpayer as he considers advisable for purposes of tax administration, and to
the extent necessary, to correct a misstatement of fact published or disclosed with respect to such taxpayer's return or
his dealing with the Internal Revenue Service.
"(6) Disclosure to competent authority under income
tax convention. --A return or return information may be
disclosed to a competent authority of a foreign government
which has an income tax convention with the United States but
only to the extent provided in, and subject to the terms and
conditions of, such convention.
(7) Federal and State agencies regulating tax return
preparers. --The Secretary or his delegate m a y disclose to
any Federal or State agency, body, or commission charged
under the laws of the United States or any State or political

subdivision of a State with licensing, registration, or regulation of tax return preparers (as defined in section 7701(a)(36))

"(A) taxpayer identity information with respect
to any such tax return preparer, and
"(B) the fact of imposition on the tax return
preparer of any penalty provided by section 7216.
"(i) Disclosure of Returns and Return Information for Purposes
Other Than Tax Administration. -"(1) Disclosure in nontax judicial and administrative
proceedings. --A return or return information with respect
to any tax imposed by this title upon a taxpayer may be
disclosed in a judicial or administrative proceeding pertaining to a specifically designated Federal statute (not
involving tax administration) to which the United States
(or a department, agency, or other executive establishment of the Federal Government) is a party before any
Federal grand jury, court, department, agency, or
executive establishment to the extent the Secretary or
his delegate determines that such information cannot
reasonably be obtained from any other source but only-"(A) if the taxpayer is a party to such proceeding;
"(B) if the taxpayer consents;

37. *f
- 23 -

"(C) if such return or return information has or
may have a direct bearing on the outcome'of such
proceeding because -"(i) there was a transactional relationship
between a party to the proceeding and the taxpayer, or
"(ii) such party is a successor in interest of
the taxpayer;
"(D) to the extent necessary to impeach the testimony of the taxpayer if the taxpayer is a witness in the
proceeding;
"(E) to the extent required by order of a court pursuant to section 3500 of title 18, United States Code, or
rule 16 of the Federal Rules of Criminal Procedure,
such court being authorized in the issuance of such
order to give due consideration to Congressional policy
favoring the confidentiality of returns and return information as set forth in this title; or
"(F) loathe extent required by the Constitution of
the United States.
However, such return or return information shall not be disclosed as provided in subparagraph (A), (B), (C), or (D) to the
extent that the Secretary or his delegate determines that such

- 24 -

disclosure would seriously impair the administration of Federal
tax laws. In the event that the Secretary or his delegate makes
such, a determination or determines that the information can
reasonably be obtained from another source, the Secretary shall
consult with the Attorney General if the United States is a party
to the proceeding or the Department of Justice represents a
department, agency, or other executive establishment of the
Federal Government which is a party to the proceeding, or with
the head of such department, agency, or establishment if the
Department of Justice does not so represent the department,
agency, or establishment. If, after such consultation, the
issue has not been resolved, a final determination shall be
made by the President or his delegate.
"(2) Disclosure of certain returns and return information to Social Security Administration and Railroad Retirement Board. --The Secretary or his delegate is authorized
to disclose returns and return information-"(A) with respect to taxes imposed by chapters 2, 21, and 24, to the Social Security Administration for purposes of its administration of the
Social Security Act;

- 24A -

"(B) with respect to a plan to which part I
of subchapter D of chapter 1 applies, to the Social
Security Administration for purposes of carrying
out its responsibility under section 1131 of the
Social Security Act; and
"(C) with respect to taxes imposed by chapter 22, to the Railroad Retirement Board for purposes of its administration of the Railroad Retirement Act.
"(3) Disclosure of returns and return information to the
Department of Labor and Pension Benefit Guaranty Corporation.
--The Secretary or his delegate is authorized to furnish returns
and return information to the proper officers and employees of
the Department of Labor and the Pension Benefit Guaranty
Corporation for purposes of the administration of titles I and
IV of the Employee Retirement Income Security Act.
"(4) Disclosure of return information as to Presidential
appointees and certain other Federal Government appointees.
--The Secretary or his delegate is authorized to disclose to a
duly authorized representative of the Executive Office of the

59/
- 25 -

President, or to the head of any department, agency, or
other executive establishment of the Federal Government, upon written request of such representative or
head, or to the Federal Bureau of Investigation on behalf of such representative or head, return information
with respect to an individual who is designated as being
under consideration for appointment to a position in the
executive or judicial branch of the Federal Government.
Such return information shall be limited to whether such
an individual-"(A) has filed returns with respect to the
taxes imposed under chapter 1 for not more
than the immediately preceding 3 years;
"(B) has failed to pay any tax within 10
days after notice and demand, or has been
assessed any penalty under this title for
negligence, in the current year or immediately preceding 3 years;
"(C) has been or is under investigation
of possible criminal offenses under the internal revenue laws and the result of any
st.ch i... •.. s .:._„.ion; and
"(D) has been assessed any penalty
under this title for fraud.

^

.

2 6

-

The official to whom such return information is disclosed
is authorized to disclose such information to his superior
officers.
"(5) Disclosure of returns and return information to
Privacy Protection Study Committee. --The Secretary or
his delegate is authorized, upon written request, to disclose returns and return information to the Privacy Protection Study Commission, or to such members, officers,
or employees of such commission as may be named in
such written request, to the extent, and for such purposes as may be, provided by Sec. 5 of the Privacy Act
of 1974.
"(j) Disclosure of Taxpayer Identity Information. --The Secretary or his delegate is authorized, upon written request, to disclose taxpayer identity information to-"(1) any Federal agency for purposes of assisting
such agency in locating a person with respect to whom
a return has been filed;
"(2) any agency, body, or commission described
in subsection (b) for purposes of assisting such agency,
body, or commission in locating a person with respect
to whom such a return has been filed or communicating
with such person to advise him that he may be entitled

S73
- 27 -

to a refund, or to assist such agency, body, or commission in its administration of the tax laws of such
State;
"(3) the Department of Health, Education, and Welfare, or appropriate State and local welfare agencies
reporting to such Department, for purposes of assisting
Federal, State, and local welfare agencies in locating
an individual described in section 610 of title 42,
United States Code, with respect to whom a return
has been filed; and
"(4) the press and other media for purposes of
notifying persons entitled to tax refunds when the Secretary or his delegate, after reasonable effort and lapse
of time, has been unable to locate such persons.
"(k) Disclosure of Returns and Return Information to Designee
of Taxpayer. --The Secretary or his delegate may, subject to such
requirements and conditions as may be prescribed by regulations,
disclose the return of any taxpayer, or return information with
respect to such taxpayer, to such person or persons as such taxpayer
may designate in a written request or consent for or to such disclosure, or to any other person at the taxpayer's request to the
extent necessary to comply with a request for information or
assistance made by the taxpayer to such other person. However,
return information shall be disclosed to such person or persons

51H
only to the extent that such return information would otherwise be
disclosable directly to the taxpayer as provided by subsection
(c) (6).
"(1) Certain Other Persons. --The Secretary or his delegate
is authorized to disclose returns and return information to any person, including any person described in section 7513 (a), to the extent
necessary in connection with contractual procurement of services or
property for purposes of tax administration.
"(m) Disclosure of Return Information Concerning Prospective
Jurors and Possible Criminal Activities. -"(1) Prospective Jurors. --Return information with respect
to any tax imposed by this title upon a taxpayer shall be disclosed to an attorney of the Department of Justice (including a
United States attorney) in connection with a judicial proceeding
described in subsection (h)(4) or (i)(l) to the extent necessary
to answer an inquiry by such attorney as to whether a prospective juror has, or has not, been investigated by the Secretary
or his delegate.
"(2) Possible Criminal Activities.-(A) Return information with respect to any tax imposed by this title upon a taxpayer shall, if such return
inform;:'-'on < ::ttes :o the attention of the Secretary or
his delegate, be disclosed by the Secretary or his delegate to the Attorney General or his delegate to the extent

- 29 -

necessary to apprise the Attorney General or his delegate of activities which may constitute, or may have
constituted, a violation of Federal criminal laws.
"(B) Return information with respect to any tax
imposed by this title upon a taxpayer may, if such
return information comes to the attention of the
Secretary or his delegate, be disclosed, in the discretion of the Secretary or his delegate, to an officer of any department, agency, body, or commission of a State (or political subdivision of a State)
charged with the enforcement of criminal laws of
such State to the extent necessary to apprise such
officer of activities which may constitute, or may
have constituted, a violation of such criminal laws.
"(n) Disclosure of Returns and Return Information with
Respect to Certain Taxes. -"(1) Taxes Imposed by Subtitle E. --Returns and
return information with respect to taxes imposed by
subtitle E of this title (relating to taxes on alcohol,
tobacco, and firearms) shall be open to inspection by
or disclosure to officers and employees of a department, agency, or other executive establishment of
the Federal Government whose official duties require such inspection or disclosure, provided that

s-vr

$1^

- 30 -

the conditions, if any, imposed upon such inspection or disclosure by section 552a(b) of title 5,
United States Code, have first been met.
"(2) Taxes Imposed by Chapter 35. --Returns
and return information with respect to taxes imposed
by chapter 35 (relating to taxes on wagering) shall,
notwithstanding any other provision of this section,
be open to inspection by or disclosure to only such
person or persons and for such purpose or purposes
as are authorized by subsection (c), (d), (e), (f), (h),
or (k).
"(o) Remedy for Unauthorized Disclosure. The exclusive
remedy for an alleged violation of this section shall be a proceeding under section 7213 or, if applicable, section 552a(g) or (i)
of title 5, United States Code, and no court shall have jurisdiction
to review a determination that a return or return information is or

is not open to inspection or disclosure or to determine the lawfulnes
of any such inspection or disclosure except in such a proceeding.
"(p) Procedures.-"0 ) Manner, time, and place of inspections.--Request
for inspection and the disclosure of a return or return information shall be made in such manner and at such time and
place as shall be prescribed by the Secretary or his delegate.

- 31 -

Tv?

"(2) (A) Reproduction of returns. --A reproduction or
certified reproduction of a return shall, upon written
request, be furnished to any person to whom disclosure
of such return is authorized or who is authorized to inspect the return. A reasonable fee may be prescribed
for furnishing such reproduction.
"(B) Disclosure of return information. --Return
information disclosed to any person under the provisions of this subchapter may be provided in the form
of written documents, reproductions of such documents,
films or photoimpressions, or electronically-produced
tapes, disks, or records, or b}^ any other mode or means
• which, in the opinion of the Secretar}' or his delegate,
are necessary or appropriate. A reasonable fee may be
prescribed for disclosing such return information.
"(C) Use of reproductions. ---Any reproduction of
any return, document, or other matter made in accordance with this paragraph shall have the same legal status
as the original; and any such reproduction shall, if
properly authenticated, be admissible in evidence in
any judicial or administrative proceeding as if it were
the original, whether or not the original is in existence.
"(3) Records of inspection and disclosure. --Except as
otherwise provided by this paragraph, the Secretary or his

- 32 -

delegate shall maintain a record or accounting of all requests
for inspection or disclosure of returns and return information,
and of returns and return information inspected or disclosed,
under this section. Notwithstanding the provisions of section
552a(c) of title 5, United States Code, the Secretary or his
delegate shall not be required to maintain a record or accounting of requests for inspection or disclosure of returns and return information, or of returns and return information inspected
or disclosed, under the authority of subsection (f), (h)(1), (h)(2),
(h)(3), (h)(4), (h)(5), (i)(l), or (j). The record or accounting
required to be maintained as provided by this paragraph shall
be available for examination by the Joint Committee on Internal
Revenue Taxation or the Chief of Staff of such Joint Committee.
The Secretary or his delegate shall, at the request of such Chief
of Staff, furnish to him a summary of such record or accounting at such time or times and in such form and containing such
information as the Chief of Staff may designate in such a request.
Such record or accounting shall also be available for examination
by such person or persons as may be, but only to the extent,
authorized to make such examination pursuant to the provisions
of section 552a(c)(3) of title 5, United States Code.

- 33 -

"(4) Safeguards. --Any department, agency, or other executive establishment of the Federal Government described in subsection (f) (2) or (g), the commission described in subsection
(i) (5), or any agency, body, or commission described in subsection (b) shall, as a condition for receiving returns or return information-"(A) establish and maintain a secure area or
place in which such returns or return information
shall be stored;
"(B) restrict access to the returns or return
information only to those persons whose duties or
responsibilities require access and to whom disclosure may be made under the provisions of this
title,
"(C) provide such other safeguards as are
necessary or appropriate to protect the confidentiality of the returns or return information; and
"(D) when the returns or the return information provided by the Secretary or his delegate in
the form of written documents, reproductions of
such documents, films or photoimpressions, or
electronically-produced tapes, disks or records
has served its purpose--

- 34 -

"(i) in the case of an agency, body, or
commission described in subsection (b), return to the Secretary or his delegate such returns or return information (along with any
copies made therefrom) or furnish a written
report to the Secretary or his delegate that
the returns or return information has been
destroyed or otherwise made undisclosable
in an}7 manner whatever; and
"(ii) in the case of a department,
agency, or establishment described in subsection (f) (2) or (g), or the commission
described in subsection (i) (5), either-"(a) return to the Secretary or
his delegate such returns or return
information (along with any copies
made therefrom),
'(b) otherwise make such returns or return information undisclosable in any manner whatever,
or

- 35 -

Sf/

"(c) to the extent not so returned or made undisclosable, ensure that the conditions of subparagraphs (A), (B), and (C) of this paragraph continue to be met with respect
to such returns or return information,
except that the conditions of subparagraphs (A), (B),
(C), and (D) shall cease to apply with respect to any
return or return information if, and to the extent
that, such return or return information is disclosed
in the course, or made a part of the record, of any
judicial or administrative proceeding described in
subsection (h)(4) or (i)(l).
"(5) Regulations. --The Secretary or his delegate is
authorized to prescribe such regulations as are necessary
to carry out the provisions of this section. "
SEC. 3. STATISTICAL PUBLICATIONS AND STUDIES
Section 6108 (relating to publication of statistics of income) is
amended to read as follows:
"SEC. 6108. STATISTICAL PUBLICATIONS AND STUDIES
"(a) Publication or Other Disclosure of Statistics of Income. --

The Secretary or his delegate shall prepare and publish annually, and
may in his discretion publish or otherwise disclose at any time, sta-

tistics reasonably available with respect to the operations of the in
ternal revenue laws, including classifications of taxpayers and of

income, the amounts claimed or allowed as deductions, exemptions,
and credits, and any other facts deemed pertinent and valuable.
"(b) Special Statistical Studies. --The Secretary or his delegate is authorized, upon written request by any person or persons,
to make special statistical studies and compilations of return information (as defined in section 6103 (a) (2) (B)) and to furnish to such
person or persons any data obtained from such special statistical
studies and compilations in statistical form. The cost of performing such special statistical studies and compilations shall be paid
by such person or persons.
"(c) Other Publications. --The Secretary or his delegate may
prepare and publish such official rulings, procedures, and similar
information of the Internal Revenue Service as he, in his discretion, considers necessary to promote uniform application of the
tax laws.
"(d) Taxpayer Identity. --No publication or other disclosure
of statistics or other information required or authorized by subsection (a), special statistical study authorized by subsection (b),
or information authorized by subsection (c) shall in any manner permit the statistics, study, or any information so published, furnished,
or otherwise disclosed to be associated with, or otherwise identify,
dirocVy ov indirectly, a particular taxpayer.

- 36A -

Sc?3

SEC. 4. INSPECTION OF CERTAIN RECORDS BY LOCAL OFFICERS.
Section 4102 (relating to inspection of records, returns, etc., by
local officers) is amended to read as follows:
"SEC. 4102. INSPECTION OF RECORDS BY LOCAL OFFICERS.
* Under regulations prescribed by the Secretary or his delegate,
records required to be kept with respect to taxes under this part
shall be open to inspection by such officers of a State, the Commonwealth of Puerto Rico, the District of Columbia, a possession
of the United States, or a political subdivision of any of the foregoing, as shall be charged v/ith the enforcement or collection of any
tax on gasoline or lubricating oils. "
SEC. 5. PENALTY FOR UNAUTHORIZED DISCLOSURE OF
INFORMATION.
Section 7213 (relating to unauthorized disclosure of information) is amended by striking out subsection (c), redesignating subsections (d) and (e) as (c) and (d) respectively, and by amending
subsection (a) to read as follows:
"(a) Returns and Return Information. -"(1) Federal employees and other persons. --It shall be
unlawful for any officer or employee of the United States or
any person described in section 6103 (1) (or an officer or

- 37 -

s?y

employee of any such person), or any person who was formerly any of the foregoing, to disclose or make known in
any manner whatever to any person, except as authorized
in this title, any return or return information (as defined
in section 6103(a)(2)); and it shall be unlawful for any person to print or publish in any manner whatever not provided
by law any return or return information as so defined; and
any person committing an offense against the foregoing provision shall be guilty of a misdemeanor and, upon conviction
thereof, shall be fined not more than $5, 000, or imprisoned
not more than 1 year, or both, together with the costs of
prosecution, and if the offender be an officer or employee
of the United States, he shall be dismissed from office or
discharged from employment.
"(2) State employees.--Any officer, employee, or
agent, or former officer, employee, or agent, of any State
(as defined in section 6103 (a) (2)) who discloses or makes
known in any manner whatever to any person, except as
authorized in this title, any return or return information
(as defined in section 6103 (a) (2)) acquired by him or
another person under section 6103 (b) shall be guilty of a
misdemeanor, and upon conviction thereof, shall be fined
not more than $5, 000, or imprisoned not more than 1 year,
or both, together with the costs of prosecution.

- 38 -

SEC. 6. PROCESSING OF RETURNS, RETURN INFORMATION,
AND OTHER DOCUMENTS.
Section 7513 (relating to reproduction of returns and other
documents) is amended to read as follows:
"SEC. 7513. MAKING SPECIAL STATISTICAL STUDIES OR
PROCESSING O R R E P R O D U C I N G O F R E T U R N S ,
R E T U R N INFORMATION, A N D O T H E R D O C U MENTS.
"(a) In General. --The Secretary or his delegate is authorized
to contract, in accordance with regulations to be prescribed by the
Secretary or his delegate, with any department, agency, or other
executive establishment of the Federal Government, any State
agency, or any person for the purpose of making special statistical
studies (as defined in section 6108 (b)) or of processing or making
reproductions by any means whatever of any return or return information (as defined in section 6103 (a) (2)), document, or other
matter. For purposes of this section, the term 'processing' includes services involving system design; advice, maintenance,
and training in connection with such systems (and operation to the
extent necessary or desirable for such purposes); or other assistance in connection with such processing.
"(b) Regulations. --The Secretary or his delegate is authorized

to prescribe regulations to provide such safeguards as in the opinio
of the Secretary or his delegate are necessary or appropriate to
protect returns, return information, documents, or other matter
(and reproductions of any of the foregoing in any form whatever)

r£6
- 39 -

described in subsection (a) against any unauthorized use or any
unauthorized disclosure.
"(c) Penalty. --For penalty for unauthorized use or unauthorized disclosure of information contained in returns, return information, documents, or other matter, see section 7213.
SEC. 7. O T H E R A P P L I C A B L E R U L E S .
Section 7852 (relating to other rules applicable under title 26)
is amended by adding at the end thereof the follo-wing new subsection (e):
"(e) Privacy Act of 1974. --The provisions of subsections
(d)(2), (d)(3), (d)(4), and (g) of section 552a of title 5, United
States Code, shall not, except as otherwise provided in section 6103(o), be applied, directly or indirectly, 1o the determination of any matter to which the provisions o=f this subtitle
apply. "
SEC. 8. T E C H N I C A L A N D C O N F O R M I N G A M E N D M E N T S .
(1) Section 6106 (relating to publicity of une-mployment tax
returns) is hereby repealed.
(2) Section 6110 (relating to cross-references) is amended
by striking out paragraphs (2), (3), (4), and (5), and by inserting
in lieu thereof "(2) For inspection of certain records concerning
gasoline or lubricating oils by local officers, see section 4102. "
(3) Section 6323 (relating to validity and priority of tax liens
against certain persons) is amended by striking out paragraph (3)
of subsection (i).

(4) Subsection (e) of section 7213 (relating to cross-references)
is amended by striking out paragraph (1) and inserting in lieu thereof
"(1) Penalties for disclosure of information by preparers of returns.
--For penalty for disclosure or use of information by preparers of
returns, see section 7216. "
(5) Section 7515 (relating to special statistical studies and
compilations and other services on request) is hereby repealed.
(6) Subsection (c) of section 7809 (relating to deposit of collections) is amended by striking out in paragraph (1) the words
"section 7515 (relating to special statistical studies and compilations for other services on request;" and inserting in lieu thereof
"section 6103 (p) (relating to furnishing of copies of returns or of
return information) and section 6108 (b) (relating to special statistical studies and compilations;"
Technical changes to change table of concents to be added.

&r
FOR RELEASE ON DELIVERY
STATEMENT OF THE HONORABLE EDWIN H. YEO, III
UNDER SECRETARY OF THE TREASURY FOR MONETARY AFFAIRS
BEFORE THE HOUSE COMMITTEE ON WAYS AND MEANS
MONDAY, SEPTEMBER 29, 1975, 10:00 A.M.
I am very pleased to respond to your invitation to
discuss the debt limit and related debt management matters,
and I will respond as fully as I can to any questions that
the Committee may have.
Let me say at the outset that at this time we are unable
to provide estimates of receipts and outlays and the resultant
deficit for fiscal year 1976. From the standpoint of forecasting revenues as well as expenditures, this is a particularly
difficult time. The economy is recovering. While the strength
of the upturn is yet to be fully assessed, the initial data
convey a sense of vigor and evidence of a strong recovery.
The difficulty of gauging the impact of the recovery on
the income side of the Budget is demonstrated by the following
specific items:
1. The underlying GNP, personal income and corporate
profits figures are still uncertain at this early stage of
the economic recovery.
2. There may be inaccuracies in estimates of individual
capital gains, since 1974 figures will not be available
until late 1975.
3. The potential effects of corporate net losses in
calculating refunds are uncertain.
4. There are uncertainties about the lag in collecting
corporate tax liabilities since corporations have a degree of
flexibility in paying their taxes and in calendar year 1975
there was a sharp drop in profits, measured on a national
income accounts basis.
WS-390

- 2These problems largely reflect the state of the forecasting
art, as well as the range of unpredictable factors which must
be taken into account. For example, we have no firm basis on
which to judge future trends in consumer sentiment. However, we
know that the Federal taxing and spending